May 16, 2023
When submitting a buy limit order, the investor sets the maximum price he is willing to pay for the stock. The order is executed only when the stock reaches or falls below the specified price. On the other hand, when he sends a limit order for sale, the investor sets the minimum price at which he is willing to accept the stock. The order will be filled only if the stock reaches or exceeds the specified price.
Limit orders offer several advantages to investors:
Price control: Limit orders allow investors to set specific price levels at which they can buy or sell shares at will. This helps them avoid adverse pricing that can appear in market arrangements.
Slippage avoidance: Slippage refers to the gap between the expected price of a transaction and its actual execution price. By using margin operations, investors can reduce the likelihood of slippage, especially during periods of high market volatility.
Patience and Strategy: Limit orders require investors to be patient and wait for the market to reach the desired price. This approach allows investors to implement their trading strategy and wait for optimal entry or exit points.
It is important to note that while limit orders provide control over the strike price, it is possible that the order cannot be filled if the stock does not reach the specified price. Therefore, it is important that investors consider market conditions, liquidity and the likelihood that the stock will reach the desired price before submitting a limit order.