How to Set a Limit in Intraday Trading? (Beginner’s Guide): It is very important for a trader to get the best profit when they are trading in the stock market.
In the stock market, a buyer will always try to buy the stock at the lowest possible price, and a seller will always try to sell the stock at the highest possible price.
Hence, there are many methods and techniques that exist in the stock market to make a good profit and minimize losses.
One such method is the limit order method.
What is a limit order?
- A limit order will allow the investor to purchase or sell a stock at a specific price or even better than that.
- There are basically two types of limit orders.
- They are as follows:
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- In the case of buy limit orders, the order will only be executed when the price reaches the limit price.
- Whereas, in the case of sell limit orders, the order will only be executed at or above the limit price.
- This price stipulation also allows the traders to have better control over the prices at which they want to execute the transactions, and this will ultimately also be reflected in your trading account.
- With a buy limit order, the buyer is guaranteed to pay either the stock price or even less than that.
- If the price is guaranteed and the filling of the limit order is not, then the limit order will not be executed unless the stock market price reaches the limit price.
- Stock limit orders are not considered to be a 100% execution guarantee because buy limit orders will only be executed chronologically and it is also not necessary that the buyer will find a seller at that particular limit price.
- When the asset won’t reach the specified price, the order will not get executed and the trader may simply walk out on the trading opportunity.
What is the Buy Limit Order?
- First, let us consider an example where you decide to buy 100 shares of ABC Company and the maximum price that you wish to pay for the same is RS. 1500 per share.
- In this particular scenario, you can choose a buy limit order option in such a manner:
- Buy 100 shares of ABC with a limit of RS. 1500.
- This buy limit order will state to the stock market that you wish to buy 100 shares of ABC but with the condition that you pay RS.1500 per share for the stock and not more than that.
- These limit orders are not absolute orders.
- Your buy limit order to ABC at RS. 1500 per share will not be executed above that price, and it will be beneficial to you if it is executed below the limit price.
- In this case, if the price of the stock falls below your set limit before the order even gets executed, you benefit.
- But if the price goes up and the limit price is not reached, then the trade won’t be executed and the funds for the purchase will remain in your trading account.
Also Read: How Much Can We Earn in Intraday Trading?
What is the Sell Limit Order?
- Let us take the example as before, such as if you place a sell limit order for RS. 1500, it won’t be executed for a price that is less than this price and the same will be displayed as:
- Sell 100 shares of ABC with a limit of RS. 1500.
- In simple terms, your bought stock will not be sold for any price that is less than RS. 1500 per share.
- In any case, if the stock price rises above RS. 1500 before your order even gets executed, then you will benefit by receiving more than your limit price for the stock.
- Alternatively, if the stock price falls and your limit price is not reached, the trade will not be executed and the stocks will remain in your trading account.
When to place a Limit Order?
- You can place limit orders when you are not in a hurry to buy or sell the stocks.
- The limit orders are not executed immediately and hence you are required to wait till your ask or bid price is reached.
- The major limit orders are placed on the resistance and support levels, and doing the same will also allow you to get the best buying and selling price.
- In limit orders, you can also divide your buy and sell orders to get the best average cost.
- You will also need good experience to set the limit orders.
- If you set the buy limit order very low, it might be difficult to get it executed.
- This will do no good to you and will also hold true for the sell limit orders.
- Once you gain some sort of experience, you will eventually find the right spot that will get you a better stock price while also ensuring your order will actually get executed.
Advantages and disadvantages of Limit Orders:
The following are the main advantages of limit orders:
Must Know: Best Intraday Trading Tips for Beginners
The following are the main disadvantages of the limit orders:
We hope that the above blog states well what the limit orders are. We hope this blog has given you some ideas on how to place limit orders and what the benefits and drawbacks of doing so are.
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Frequently Asked Questions (FAQs):
Answer: A limit order is the use of a pre-specified price to buy or sell a security.
Answer: Similar to a limit order, you can use the stop loss limit or the stop loss market order. To do this, you need to ensure that you place a limit price, which can be higher or lower than the trigger price, depending on whether you wish to buy or sell.
Answer: A stop-limit order is an order to buy or sell a stock that will also combine the features of a stop order and a limit order.
Answer: Investors can cancel standing orders or limit orders for any reason, as long as the order has not been fulfilled.
Q#5) Answer: Limit orders will only be executed at a specific limit price or even better than that, whereas the stop loss will only be triggered at a specific price that is prevailing in the market.d a stop limit?