Limit and stop orders.?

Question

Can someone explain to me exactly what each order is and how they work? Also which situation to use them in?

Answer 1

A limit order is one that you enter thru your broker that specifies the highest price you are willing to pay for a particular security.  For instance, you want to by XYZ stock that is currently selling for $11.48 a share and you don't want to pay much more that that.  You enter a limit order of "x" amount of shares with a limit price of $11.50 per share.  Your order will only be filled if it can be bought for $11.50 or less.  If the ask price is higher the order will not execute (this would be apposed to entering a market order for "x" amount of shares at whatever the current ask price is, sometimes substantially higher than $11.50 in fast moving markets.  

A stop order is an order you enter with your broker that tells them to sell you security if it reaches a certain price.  Using the same example as before, this time assume you bought 100 shares of XYZ @ $11.50 a share.  You decide you are only willing to loose $1.00 per share, so you would place a stop on your 100 shares at $10.50.  If XYZ goes down and hits $10.50, you stop order will immediately be executed as a market order (meaning the broker will sell it at the best price he can get, even if it's less than $10.50).  This is very useful if you are going to be away and can't keep an eye on you positions throughout the trading day.  One last thing, stop ordrer and limit orders can both be entered as GTC (good til cancelled) or GTD (good til date meaning it will be active until executed or until the end of the date specified).  

Good luck with your trading!!

Answer 2

limit and stop orders (i think but im not totally sure) are used to time when to sell or execute (in the case of an option) a security when it gets to a certain point (limit for a certain positive point and stop for a certain negative point). Now im not sure if this only applies to online brokerage firms (which let u set a stop order or limit so that you automatically sell a stock when it reaches a certain value) or also to mental notes that people make when to sell and when to buy.