People ask me all the time about the following situation. Let’s say you want to buy a stock but you’re scared it will run up too much before you buy it.
Have you ever heard of a limit order?
A limit order allows you to specify the maximum price at which you want to buy the stock. Let’s say, for example, the stock is trading at $25 a share. However, it is volatile and you worry it’ll jump up by a few dollars.
If you put in a market order, it will be executed at the next available price. Now let’s say you put in a limit order to execute the trade at $25.02 a share. This means the only way the trade will be executed is if the stock is trading at $25.02 or lower.
Let’s say the stock takes this pattern.
- 10 AM, $26.00 - no trade execution
- 10:30 AM, $25.50 – no trade execution
- 11 AM, $25.03 – no trade execution
- 11:30 $25.01 – trade is executed
Do you have any other questions about your portfolio? We’d love to hear them.