When an investor wishes to buy or sell securities at a specific price, he/she enter limit orders. A limit order can only be executed at the specified price or better. Basically, a limit order allows you to guarantee that, if a trade is possible, you will receive a specified price (limit price) or better. However, if there is too much movement in the market, or the stock never reaches or surpasses the limit price, a trade will not be executed. Thus, a limit order guarantees a price or better, but not an execution.
Example: A customer places an order to buy 100 shares of XYZ stock at 30. The order may not be executed unless the stock can be purchased at 30 or below. If the order was to sell 100 shares at 30, it could not be filled unless the sale price was 30 or above.
There are two types of limit orders:
Buy Limit Orders - Orders will execute only if the market reaches the specified price or lower for a long enough period of time to execute the order. A buy limit order is placed below the current market price of the security. If you place a buy limit above the market price, the order will be executed immediately at the current market price.
Sell Limit Orders - Orders will execute only if the market reaches the specified price or higher for a long enough period of time to execute the order. A sell limit order is placed above the market. If you place a sell limit below the market price, the order will be executed immediately at the current market price.
*Note: With limit orders, it is possible that the order may never be executed because the limit price is not reached.
**Note: A Limit Order placed on the DriveWealth Application is considered a Day Order—A day order will expire at the end of the trading day, if it is not executed before market close. Orders placed between 4:00-4:15 PM Eastern Time will be rejected. Orders placed after 4:15 PM Eastern Time will remain pending until executed, canceled or expired (market close the following trading day).
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