A sell limit order allows you to control the price at which you sell stock. Instead of selling at the current market price, the sell limit order instructs your broker only to sell once your stock hits a certain price point. For example, if you have a sell limit order of $95, your broker cannot sell unless the stock rises to $95 or higher.
Similarly, you can create limit orders on stock purchases which instruct the broker not to buy stock until it falls to a certain price. In this case, your limit order of $95 would instruct your broker not to buy the stock until its price falls to $95 or lower.
Limit orders are not exact price orders. In other words, they don’t tell your broker to buy or sell at exactly $95 but only if the stock exceeds that price (in a sell limit order) or falls below it (in a buy limit order).
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What Is The Difference Between A Sell Stop and Sell Limit?
A sell limit tells your broker only to sell shares of your stock once a specific price becomes available. You cannot set your sell limit below the current market price, as the current price would be better than your sell limit price.
A sell stop order tells your broker to sell the shares once a certain price point has been hit. You can set sell stop orders below market price so that if your stocks go down instead of up, it will trigger a sale of those stocks.
Some orders are stop-limit, meaning once your stock hits the stop sell price, it triggers a limit order. This can be risky if the limit order price isn’t the same as the stop sell price because you may find yourself in a situation where you want to sell but there are no buyers at your limit price.
For example, if your stop sell order is $85 and your limit order is $86, then if the stock drops to $84 it will trigger the stop order, yet you won’t be able to sell because $84 is below your sell limit price.
You also risk losses due to partial fulfillment with stop-limit orders. For example, suppose your limit order is to sell 800 shares at a certain price but only 350 shares are available at that price. You’ll only be able to sell 350 shares and may incur losses on the unsaleable portion of your investment.
Sell limit orders are visible to the market, while stop sell orders are not visible until they are triggered.
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What Is A Sell Limit Order Example?
Suppose you have shares of stock in company XYZ. It is currently trading at $135 and you want to sell only if the stock goes up to $143.
In this case, you would set a sell limit order of $143. This tells your broker not to sell unless the stock hits that price.
However, if the stock exceeds expectations and surges up to $155 overnight, it will trigger a sale because $155 exceeds the sell limit order of $143.
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What Is The Difference Between A Stop Order and a Limit Order?
In addition to stop sell and sell limit orders, you can put stop and limit orders on purchasing stock. These work similarly to stop sell and sell limit orders but refer to purchasing instead of selling.
A limit order tells the broker not to buy shares of a particular stock unless the price falls below a certain point. For example, if you want to buy shares in company ABC only when they fall below $75, you would set a limit order of $75 on that stock.
You cannot put a limit order to buy above the current market price because there is already a better price available. For example, if company ABC is currently selling at $65, you can’t put a limit order of $75 on it.
Stop orders, on the other hand, can be set above the current market price. Stop orders merely tell the broker to buy once the stock hits a certain price point. This can be helpful if you have your eye on a stock that is expected to rise.
You can set a stop order to purchase shares once the stock rises to a certain level so that you can enter in a stronger position.
When you use a stop order, you risk losses if the stock falls far below your stop order. For example, if you have a stop order on XYZ stock of $75 and the stock price falls to $60, you will end up selling at that lower price point.
Stop orders are not generally visible in the market. However, some brokers add “stop on quote” to their order types. This makes it clear that the stop order will only be filled if a valid quoted price is met.
How Long Does It Take For A Limit Order To Execute?
Your limit order is filled when the market opens at the price point you have specified.
That means that if you have a sell limit order of $70 on a particular stock and that stock opens at $75 the next morning, the sell limit will be executed.
However, if the stock opens at $65, the sell limit will not be executed until the next business day even if the stock appears to rise in price over the course of the day.
Which Broker Is Best For Limit Orders?
Most brokers cater to the various types of order entries, including:
- Market orders
- Buy stop orders
- Sell stop orders
- Buy limit orders
- Sell limit orders
- Buy stop orders
- Sell stop orders
But all brokers are not created equal. For example, Robinhood sells customer data to intermediaries, who can see which orders they are placing. The plus is that the cost of placing market orders, limit orders, or any other type of order on Robinhood is commission-free.
The downside is you may not necessarily be receiving the best fill price. And that’s probably not a big deal if you plan, for example, to buy Amazon stock or Netflix stock and hold it for the long-term. What’s a few pennies between friends!
But if you plan to trade shorter term and more frequently, the difference between a few pennies here and there in order fills can be significant, and really add up over time.
If you think you will be placing trades more often, and want the assurance of fast and accurate order execution time and again, TD Ameritrade is top tier broker with a world class trading platform, thinkorswim.
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