Fundamental Options Expert Karim Rahemtulla explains Limit Orders and why they are the ONLY type of order you should ever place.

limit orders explained

What Is A Limit Order? – Explained

A Limit Order sets a specific price (Limit Price) that is the highest a buyer will pay or the lowest a seller wants to receive. The buyer will accept a price lower than the limit and a seller will accept a price higher than the limit. If the stock or option hits that price during the day, your order will be filled. If not, the order is canceled and you have the option to enter it again the next day.

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In our simply-answered, simply-explained series, we’re going to go through a bunch of different strategies and ideas. I’m going to explain them to you so they’re easily understandable and you can put them into action every single day.

What Type of Order Should Investors Use?

So, today I’m going to cover limit orders. A limit order is a really really simple order and it’s the only type of order you should ever use. Again…EVER use. Limit order…nothing else. Don’t even think about another type of order. Do you know why? Because if you do another order, you’re going to get fleeced by the market makers. They’re going to take you to the cleaners. So just use a limit order.

When you use a limit order, what you’re saying is “I’m going to buy or sell a stock or an option at a specific price. End of story. If you put a market price in there you’re going to get filled at whatever price THEY want you to pay…not what you want to pay.

This is one of the most critical things in any kind of trading. Whether you’re trading stocks or options. Whether you’re doing a strangle or a spread. Whatever type of strategy…limit orders only. Anything else is a no no.

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