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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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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About Karim Rahemtulla
Karim began his trading career early… very early. While attending boarding school in England, he recognized the value of the homemade snacks his mom sent him every semester and sold them for a profit to his fellow classmates, who were trying to avoid the horrendous British food they were served.
He then graduated to stocks and options, becoming one of the youngest chief financial officers of a brokerage and trading firm that cleared through Bear Stearns in the late 1980s. There, he learned trading skills from veterans of the business. They had already made their mistakes, and he recognized the value of the strategies they were using late in their careers.
As co-founder and chief options strategist for the groundbreaking publication Wall Street Daily, Karim turned to long-term equity anticipation securities (LEAPS) and put-selling strategies to help members capture gains. After that, he honed his strategies for readers of Automatic Trading Millionaire, where he didn’t record a single realized loss on 37 recommendations over an 18-month period.
While even he admits that record is not the norm, it showcases the effectiveness of a sound trading strategy.
His focus is on “smart” trading. Using volatility and proprietary probability modeling as his guideposts, he makes investments where risk and reward are defined ahead of time.
Today, Karim is all about lowering risk while enhancing returns using strategies such as LEAPS trading, spread trading, put selling and, of course, small cap investing. His background as the head of The Supper Club gives him unique insight into low-market-cap companies, and he brings that experience into the daily chats of The War Room.
Karim has more than 30 years of experience in options trading and international markets, and he is the author of the bestselling book Where in the World Should I Invest?