When One Loses Shares With A Limit Order
To understand the concept behind a limit order in the stock market, one must first understand how shares of stock are generally bought and sold. As such, there are many different ways of buying such shares whether one is an individual or professional trader. So, depending on the amount of money one has to invest, if one is looking to obtain shares at lower prices than usual, one can often request to buy and sell such shares under orders which allow one to set such limits.
For, when one works on or with the stock market, whether as an individual, or a professional trader, an order placed with a limit can be a way to assure one buys or sells such shares at a price one can afford while also protecting against loss. As such, when one requests such an order, one identifies a specific limit amount which one wishes to pay for such stock. So, if the stock drops, the individual pays less for such a stock. Whereas, if the share amount does not equal the limit amount, then such an order is considered null and void and the trader has no responsibility to purchase such stocks.
However, one may want to keep in mind before requesting limits on an order, that if such prices never equal the limit one has set, one loses the option of buying such stock. As such, one must also be willing to recognize that when using such orders, one may or not have the opportunity to buy or sell such stocks. Whereas, under current market values, as the stocks are purchased on the spot, one guarantees that one receives the current market value whether buying or selling such shares at the time.
So, if the main purpose one has is to acquire stock of a certain company, one may want to consider purchasing same under a market order rather than a limit one. For, when doing so, one assures one can either buy or sell such stocks at current market value and that one will acquire all stocks which one desires. However, if one uses an order with a limit, then there are not guarantees that such an order will be honored.
For, if the price of such shares never equate to the limit which one has set in such an order, then the order becomes null and void. So, if one is looking to buy or sell such shares in relation to a specific company in relation to future growth, one may want to purchase such shares under a market order. Otherwise, one may lose the opportunity to buy such shares at the current market value, especially if such values rise after such an order has become null and void.
Regardless, whether buying or selling with a market or an order in which one can set a limit, one must also realize the risk involved when working with the markets. For, while one can make a great deal of money in a short time, one can also lose a great deal of money rather quickly as well. As such, unless one has the expendable income to invest in such stocks, whether under limit or market orders, one may be better served to place such money in a high end money market account, rather than risking all one has in the stock market.
Therefore, before calling for a limit or market order, it is often good to decide whether the priority is to own a specific stock or shares in a company, or to purchase such shares at a predefined rate. For, when one calls for such an order, one agrees to buy or sell such shares regardless of current value. Whereas, when one uses a limit order, one has the ability to state that one is only willing to buy or sell such shares at a specific value which is identified by the trader at the time such a call is made. After which, if the value of the stock never equates to that of the limit, such an order is canceled.
Article Source: FxTradingStock.com
About the Author
A limit order is a term used in the stock market, commodity markets and forex markets to establish a price at which the market unit will be purchased or sold. Limt orders allow traders to define the desirable price for the opening of a trade
by: Martin I. Vick
Total views: 15
Word Count: 692
Date: Mon, 8 Nov 2010
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