What it is:
How it works (Example):
For example, you want to buy ABC Inc. at $50. Theis currently trading at $51, so you set a limit order to buy at $50. The price may go up or it may go down, but you know that as soon the trades at $50, your order be triggered and you'll buy at your predetermined price.
Once you buy ABC at $50, let's say you decide you want to sell at $53. Again, you place your limit order and wait. Once ABC trades at $53, your order becomes active andsell at your target price of $53.
Limit orders are especially useful in volatile market environments. If a $50 trades between $50 and $60 on a volatile day, investors using market orders be at a decided disadvantage because they won't have control over the price at which they buy or sell.
Why it Matters:
By using limit orders, you can protect yourself from buying aat too high a price or selling at too low a price.
brokers charge more to execute a limit order than they do for a .