What is a Limit Order?

A limit order is a type of stock trading order designed to protect a trader from volatility in market prices. It is an order to buy or sell an asset at a set price or better. If the price for the asset hits the predetermined price or better, the limit order will be executed, ensuring that the trader does not overpay and reap maximum benefits from the trade.

One of the key differences between a limit order and a market order is that a limit order is not guaranteed to be filled. That is, if the given asset’s market price never reaches or exceeds the limit price, the order will not be executed. This is important to consider if the trader puts in a limit order to buy a given asset at a very low price.

A limit order can also be used in conjunction with stop orders. Stop orders are similar to limit orders but are used to specifically protect a trader from large losses in a volatile market. If the price of a given asset falls below a certain predefined level, a stop order can be set in place to automatically sell the asset and avoid potential future losses.

Overall, limit orders are a tool popular among traders, particularly those looking to protect their investments in volatile markets. By enabling more control of the price at which a given asset is purchased or sold, traders can be sure that they do not overpay and reap maximum gains from the trade, while still being protected from losses in a volatile market.