Limit Orders Explained – Trade of the Day
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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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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About Karim Rahemtulla
With more than 20 years of experience, Karim has mastered the subtle art of options trading. What we admire about him is his ability to score huge gains while minimizing the massive amount of risk that often comes with options. Beyond his expertise in options trading, he is also the author of the best-selling book Where in the World Should I Invest? He publishes weekly about smart speculation in his latest free e-letter, Trade of the Day.