What is a Limit Order and What Are Its Advantages?
A Limit order is a type of order that positions the maximum or minimum at which you are agreeable to buy or sell a specific stock. Stocks are a matter of pure chance in common cases. Unavoidable events such as weather disturbances and wars can ruin chaos on share prices of stocks. It is better to set limits on your activity so you would not be burned out. Whether you want to buy or sell your own stocks, you must be contingent on at least one other person or entity to eventually perform the transaction. This person will act as your own and you have to tell this person your desire to buy or sell at a certain price. You have to decide your chosen price that you are willing to settle for this transaction, and then this agent will tell you what that price would be. This is what we may call a limit order.
In order to avoid buying or selling a stock into a higher or lower price that what you wanted, you have to place a limit order rather than a market order. This limit order could give you a chance to buy or sell a security at a particular price. You may carry out a buy of a forex limit order at the time of limit price or lower, while you may execute a sell of this type of order at the limit price or higher. When you place a market order, you won’t be able to control the price at which your order will be filled.
The primary advantage of this currency trading limit order is that it guarantees that the trade will be carried out at a specific price, on the other hand, your broker agent might charge you with a higher commission for this order and it is potential that your order will be executed once the limit price is not attained. This allows you to have the advantage of determining the price.
Limit order is a safeguard against momentous loss of money. It is not certain to take effect, on the other hand. The share price may never reach your limit order level, if that happens, then this type of order has not been filled and it either stays in effect or is cancelled after a certain or definite amount of time. An investor with a long position can set a limit order at a price higher than the current market price to gain profit while investors with short position may set this type of order below the current or present price as the initial target to manage risks along the way.
Always remember that there are no rules that regulate investors from using different types of orders to manage their positions. Each order has different risk tolerance and it is always a personal decision of an investor what order should be applied.