![]() The trade will only execute at the set price or better.Ī stop order, on the other hand, is used to limit losses. This frees the investor from monitoring prices and allows the investor to lock in profits. Limit orders are executed automatically as soon as there is an opportunity to trade at the limit price or better. So a limit order at $50 would be placed when the stock is trading at lower than $50, and the instruction to the broker is Sell this stock when the price reaches $50 or more. For someone wanting to sell, a limit order sets the floor price. The investor would place such a limit order at a time when the stock is trading above $50. For example, for an investor looking to buy a stock, a limit order at $50 means Buy this stock as soon as the price reaches $50 or lower. However, stop and limit orders can be placed for all kinds of securities, including options and futures.Ī limit order is an instruction to the broker to trade a certain number shares at a specific price or better. This comparison uses stocks in the definitions and examples because that is the most common scenario for individual investors. ![]() For sell orders, this means selling as soon as the price drops below the stop price. For buy orders, this means buying as soon as the price climbs above the stop price. For buy orders, this means buy at the limit price or lower, and for sell limit orders, it means sell at the limit price or higher.Ī stop order, sometimes called a stop-loss order, is used to limit losses it instructs the broker to execute a trade when a stock reaches a price beyond which the investor is unwilling to sustain losses. A limit order instructs the broker to trade a certain number of shares at a specific price or better. A limit order is used to try to take advantage of a certain target price and can be used for both buy and sell orders. These orders are instructions to execute trades when a stock price hits a certain level. Rather than continuously monitor the price of stocks or other securities, investors can place a limit order or a stop order with their broker. Diffen › Finance › Personal Finance › Investment
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