How Do Limit Orders Work?
a limit order is a specific instruction that an investor gives to a broker, describing how a specific trade is to be executed. when purchasing a stock, a limit order will set the maximum price an investor is willing to pay for the stock. when selling a stock, the limit order will set the minimum price the investor is willing to accept. jim wants to buy shares of al's ice cream. al's is currently trading in the market at $25 per share. jim doesn't want to pay the market price, $25, because he thinks it's a bit too high. instead, jim sets a limit order to buy at $20. this tells jim's broker that he is not willing to pay any more than $20 per share for shares of al's ice cream. once the stock falls to $20 or less, the broker buys the shares for jim. if al's doesn't drop below $20, no shares are purchased. jim can also use a limit order to sell his shares. if he wants to sell al's at $30, but the current price is $25, he can ? a limit order to sell at $30. this set the minimum price jim wants to accept for the stock. his shares will only sell once the stock price hits $30 or higher, otherwise he will continue to hold shares in al's. limit orders help investors control the prices, and which they buy and sell stocks.