What is a Limit Order?
A limit order is a method of placing a stock order by specifying the price at which you want to buy or sell. You set your own conditions, such as "buy at this price or lower" or "sell at this price or higher."
Known as a "Limit Order" in English, it is one of the two most fundamental order types alongside market orders. While it offers the advantage of trading at your desired price, the drawback is that the order will not execute if the market price does not reach your specified price.
Key Concepts of Limit Orders
How Limit Orders Work
With a limit order, you specify prices as follows:
- Buy limit order: "I want to buy at X yen or below" - The order automatically executes when the stock price falls to or below your specified price
- Sell limit order: "I want to sell at X yen or above" - The order automatically executes when the stock price rises to or above your specified price
For example, if a stock is currently at 1,000 yen and you place a buy limit order at 950 yen, the purchase will automatically execute when the price drops to 950 yen.
Limit Orders vs. Market Orders
- Limit order: Specify a price. Less certain to execute, but prevents unexpected prices
- Market order: No price specified. Nearly guaranteed to execute, but may fill at an unexpected price
Order Duration
Limit orders can be set with different expiration periods:
- Day order: Valid only during that day's trading hours
- Good till week: Valid until Friday of the current week
- Specific period: Valid until a specified date (typically up to about 30 days)
Key Points for Beginners
- Limit orders allow you to trade at your desired price, offering peace of mind for beginners. Start by getting comfortable with how they work
- Setting your limit price too far from the current market price makes execution unlikely. Set realistic prices
- During rapid market changes, limit orders may not execute. Consider market orders for urgent situations
- You can check whether your order has been executed at any time through your brokerage app. Make it a habit to check regularly
Summary
A limit order is a method of placing trades by specifying your desired price, making it one of the most fundamental order types in stock trading. While it offers the security of trading at your specified price, the trade will not execute if the market price does not reach that level. By learning to use limit orders together with market orders appropriately, you can make better trading decisions for different situations.