Wednesday, April 14, 2010

Limit Orders

I wanted to do a quick post for those of you who may not know what a limit order is. This is a very important term for if you are going to buy stocks or ETF's.

Most brokerages should offer you limit orders for Free - if they don't, then you want to find another place to buy your stocks. This does not include sharebuilder, because they have a different way of buying stocks.

Limit Order lets you set a price that you want to pay for a stock (or sell a stock at) without you having to watch the market and time the buy/sell correctly. Who has the time to do that anyways?

For example, say you want to by share of GE and the current price is $19, but you have seen it fluctuate over the last few days. So you decide you only want to pay $18.50 per share. You set that as your limit order and just set it as Good until Canceled. Then the brokerage (well, their computers) do all the work - as soon as it gets to that price, it will buy it for you - even if it was only that low for like 3 minutes....

Yesterday, the market started off low and I had some limit orders in for some ETF's in our Roth IRA, It bought those at the low price before I even got out of bed, and by the time I was out of bed, the stock market had gone back up. That is why Limit Orders can help save you a lot of money!

The same can go for when you want to sell - in fact, is is about the ONLY way I would sell stocks. Say you own GE (just to keep the same stock example) but you think it will go to $20 and it is only $19. Set your sell price at $20 and as soon as it hits that, if only for a moment, then you will get your stocks sold at the price YOU want - you are sure of the amount of money you will make for that sale.

So be sure to use limit orders when buying (except for sharebuilder) or selling stocks/ETF.

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