Buy Limit Order
What it is:
A buy limit order is an order to purchase a security at or below a given price.
How it works/Example:
Limit orders generally have deadlines (i.e., the latest date on which the trade may be executed before it is canceled) and they usually cost more to execute than orders. Electronic Communication Networks (ECNs) are often used to execute limit orders because they match trades by price very quickly.
Why it matters:
There are all kinds of limit orders. For example, if you wanted to sell your Company XYZ holdings for no less than $10 per share, you could place a $10
Buy limit orders are common because they can limit losses and profits by giving investors some sort of specified purchase or sale price. This makes them very useful in low-volume or high-volatility markets, but is important to that a buy limit order not be executed if the does not meet the order requirements. This can be troubling for investors who need immediate liquidity or face the risk of missing a major run-up in the price of the .
The quantity and nature of limit orders placed with brokers can often indicate the direction in which investors anticipate a stock price trending, which makes limit-order volume interesting to watch.