In the stock market, there is a common term known as “orders.” There are various types of orders, such as execution orders, cancellation orders, and opening orders. Among them, the limit order (LO) is also one of the commonly used orders by stock investors. So, what exactly is a limit order? What are the different types of LO orders? In this article, we will explore these topics to help you understand limit orders and how to use them effectively in your trading journey.
What is a Limit Order?
A limit order, abbreviated as LO, is a buy or sell order for securities at a specific or better price. Using a limit order allows investors to have better control over the buying or selling price in their transactions.
- A buy limit order allows a trade to be executed at a price lower than or equal to the limit price.
- A sell limit order executes the trade at a price equal to or higher than the limit price.
Types of Limit Orders in Stock Trading
There are two types of limit orders used in stock trading, each with its own characteristics:
1. Opening Limit Order
An opening limit order is used to buy or sell a security at the beginning of a trading session. The transaction takes place if the market prices meet the set limit conditions. The unique feature of this type of limit order is that it is only valid for the first trading session and becomes ineffective afterward.
2. Closing Limit Order
A closing limit order is used to buy or sell a stock at the closing of a session if the price is better than the set limit price. If the conditions are not met, the closing limit order will be canceled. This type of LO order is an extension of the market’s closing order.
Advantages and Disadvantages of Limit Orders
Advantages of Limit Orders
- Limit orders help investors buy or sell stocks at better prices compared to market prices at the time of placing the order.
- They help investors limit loss risks and adhere to stop-loss or profit-taking principles when the market experiences unpredictable price fluctuations.
- Limit orders enable efficient trading, even when there isn’t much time to monitor market movements.
Disadvantages of Limit Orders
- When market prices deviate significantly from the set limit price, investors may face risks and miss out on opportunities for better trades.
- Limit orders may not be executed automatically, even if the limit price is met, due to the priority rules in order matching.
- Market volatility that doesn’t align with an investor’s predictions can lead to psychological pressure and waiting time.
Placing a Limit Order in Stock Trading
To place a limit order correctly, follow these steps:
- Ensure you have a stock trading account on the stock exchange. Log in to access the trading interface.
- Select the “Normal Order” option on the screen. Pay attention to the relevant information regarding limit orders.
- Enter the required information for the limit order according to the given instructions. Note that the limit price needs to be specific and within the range of the market price limits.
- Click “Place Order” to confirm. The system will display the approved order details. Double-check the information for accuracy and enter your PIN.
- Confirm the completion of the limit order. The system interface will show the order object, order type, price, time, status, and more.
This article aims to share some insights into limit orders in trading. As an investor in the market, it is important to understand the trading process and how to place orders correctly. Understanding limit orders will help traders make effective and profitable investment decisions. At Kienthucykhoa.com, we hope that all investors will find success in their trading journey. For more information, feel free to contact us via our website Kienthucykhoa.com or reach us at our hotline: 0988531538.
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