What is a Buy Limit Order?

A buy limit order lets investors buy shares at or below a specified stock price. That allows them to keep control over how much they pay. Investors give the order to a broker, who will only fill it if the stock falls to the set price or below during the time the order is in place. That means that although the price is guaranteed, the order may not get filled if the price doesn’t decline far enough or if there aren’t enough shares available to buy.

The most common types of orders are market orders, limit orders, and stop orders.

A market order is the quickest, most basic type of order investor can place to buy or sell stocks. They can get the best available market price, since market orders take priority over other kinds of orders. They are typically executed immediately during regular and extended (before or after) trading hours. But bear in mind that not all stocks support market orders during extended trading hours. If the market closes without the order being filled, then it gets into a queue to be traded when the market reopens.

Both limit orders and stop orders can be useful parts of an investor's toolbox because they provide more control over what stock price level will trigger a purchase or sale. But they work differently and can serve different purposes. Generally speaking, investors use limit orders when they want to have control over the execution price, but stop orders are often used to buy or sell when the market moves in an unexpected direction.

A limit order lets investors buy or sell at a set price (the “limit”) or better. Depending on whether investors want to go higher or lower than the set price, limit orders come in two flavors: buy limit order and sell limit order.

A stop order, aka “stop-loss order,” lets investors buy or sell a stock once the price reaches a specified level (the “stop” price). That helps investors minimize potential losses in case the stock moves in the wrong direction. When a stop price is reached, the stop order becomes a market order.

Similar to limit orders, stop orders also come in two varieties: buy stop orders and sell stop orders. If investors hope to purchase a stock at a lower price but don’t want to miss out on a buying opportunity if the price goes up, they can set a buy stop order above the current price. If the stock rises to the stop price, the buy stop order becomes a market order. If investors hope to sell their shares at a higher price but want to limit any potential losses if the price starts dropping, they can set a sell stop order below the current price. If the stock falls to the stop price, the sell stop order becomes a sell market order.

Buy stop order: Let’s say a stock is trading at $5 and an investor is hoping to buy it at a lower price. However, the investor also has a hunch that if the stock goes up to, say, $8, it may go even higher. To minimize potential costs, they can set a stop price at $8. If the stock rises to $8 or higher, the buy stop order becomes a buy market order and the investor can buy the stock at the best available price. But if the stock stays below $8, the market order won’t be triggered and no purchase will take place.

Sell stop order: Let’s say, a stock is trading at $7 and an investor is hoping to sell their shares at a higher price. If the investor also wants to shield themselves from a potential drop in price, they can set a sell stop order. Let’s say the stop price is set for $5. If the stock falls to $5 or lower, the sell stop order becomes a sell market order and the investor can sell at the best price available. If the stock stays above $5, no order is triggered and no transaction takes place.

We’ve been learning about buy limit orders, which allow an investor to buy stocks at or below a set price. With a sell limit order, stocks can be sold at a specified price or higher. That allows investors to set a minimum amount that they can receive for each share they own.

Let’s say, a stock is trading at $17, and an investor wants to receive at least $20 for each share they own. With a sell limit order, they can set a limit price at $20. If the stock rises to $20 or more, the shares will be sold at the market price. If the stock doesn’t rise to $20, the order won’t be executed and the investor will keep their shares.

Three factors help determine how long it takes to get confirmation that an order has been placed:

• The type of order
• How much trading activity there is in the stock
• Whether the market is open

Typically, orders placed on the New York Stock Exchange or Nasdaq between 9:30 a.m. and 4 p.m. ET Monday to Friday are sent to the market right away.

Now, a market order in a liquid, or heavily traded, stock such as Twitter will almost always be filled and confirmed immediately. It may take longer to fill an order for stocks that are not very liquid.

A limit order could take longer to fill. And remember, with limit orders, a “fill” is not guaranteed. The same is true for stop orders.

Ultimately, the duration it takes to confirm a trade depends on how the bidding process plays out between the buyer and seller.

When placing a trade with a broker online or over the telephone, ensure the trade has been executed and confirmed.

Brokers online have different trading platforms. Most will show different statuses of orders— open, filled, partially filled or canceled.

When investing over the phone, an investor can receive a verbal confirmation from the broker on the price of the trade and the number of stocks filled. The investor will then likely receive a confirmation in the mail from the broker a few days later. Typically, trades made over the phone are visible on the company's website or trading platform as well, so investors can confirm and tally immediately.

Once an order is executed, the settlement period begins. At this stage, the buyer makes the payment and the seller, in turn, delivers the purchased shares. Settlement usually takes two business days after the trade to complete.

Let’s say an investor bought shares of Facebook on Monday. As soon as the order is filled, the broker will debit their account for the cost of the transaction. But the investor’s account likely won’t officially receive the shares until Wednesday.

The above examples are shown for illustrative purposes only. In general, understanding order types can help you manage risk and execution speed. However, you can never eliminate market and investment risks entirely. It's usually best to choose an order type based on your investment goals and objectives. 20200103-1048608-3152918