Here we take a look at the two most common ways to open a stock trade with your broker.
Opening a market order on a stock means you wish to buy that stock at the current market “Ask” price. This is the quickest executing type of order, as it means you will accept the Ask price closest to the current market price. The price you get may differ from the displayed price on the exchange when you place the order because of factors related to volatility and liquidity.
A limit order indicates the highest price you are willing to pay or the lowest price you are willing to accept to sell a security. This helps to protect you from sudden swings in prices that you may suffer while executing a market order, but it may also take longer to execute as the trade will only be executed when the market order conditions are hit.
Example: Limit order to buy.
Joe wants to buy Apple Inc for $600 per share. The current price is $601 dollars. He places a limit order for 100 shares of Apple for $600. If Apple’s price suddenly moves sharply down to $595, his trade may execute at $595. However, if the stock price never moves down and continues to rise to $610, his order will never be executed.