Buying Stocks: How Limit Orders work

When you’re buying stocks, there are a lot of different kinds of orders you can use. I generally understand the basics of most of them, but in actuality, I only use 1 type, a limit order. For the dividend stock investor who is investing for the long-term, it’s all you really need. Check out Investopedia for all the different stock market order types.

Here’s how a limit order works:

1. Buying stocks. If stock ABC is currently at $110, you might set a limit order of 100 [email protected] $100. If stock ABC’s price goes down to $100, the order will fill and you’ll have bought the 100 shares. If the stock price doesn’t go down to $100, you won’t buy anything.

2. Selling stocks. If stock ABC (I own 100 shares) is currently at $100, you might set a limit order of 100 [email protected] $150. If the price of the stock goes up to $150, you’ll sell the 100 shares. If it doesn’t go up that high, the order won’t execute.

I use “GTC” limit orders (as opposed to a 1-day order), which means, “Good till canceled.” Some brokerages will automatically cancel these requests after a certain period of time.

Tomorrow: why I like to use limit orders.

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