What is a Buy Limit Order?

A buy limit order is an order to buy a stock at or below a specified price.¹ This helps ensure that "investors don’t pay more than a predetermined price for a stock."²

How to set up a buy limit order

An investor specifies the price of a buy limit order, which is generally lower than the current market price. The order only fills as long as the price is less than or equal to the limit value. However, a buy limit order does not guarantee execution, as the buy order isn’t triggered until it hits the limit value.³

Example

Connor wants to invest in shares of company ABC, which are currently trading at $50, so he places a buy limit order at $47. The share price surges to $54. Later that trading day, the price drops to $47, and Connor’s buy limit order is fulfilled. Based on these events, Connor managed to purchase shares of ABC at $47. However, if the price never dropped to $47 and instead kept rising, Connor would not have been able to purchase the shares as this would not have hit his limit value, and therefore his buy limit order would not have been filled.

Sources

1. Buy Limit Order. Investopedia.

2. Limit Orders. SEC.

3. Market Order vs Limit Order: Definition. Investopedia.

Please note that this article is for general informational purposes only. All examples are for illustrative purposes only. The views and opinions expressed are those of the author and do not reflect or represent the views and opinions of Alpaca. Alpaca does not recommend any specific securities or investment strategies.

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