Different Types Of Limit Orders

LIMIT ORDERS (LMT):

Limit orders is an order that can be used to enter or exit a trade. It specifies a price that the trader is willing to pay or accept (or better). A buy limit order is placed below the current market price and states the highest price the trader is willing to pay for a purchase. A sell limit order is placed over the current market price and is the lowest price the seller is willing to accept.

If you already have a position in the market - you were long the market, you could use a limit order to tell the broker at what price you wanted to sell once your price objective had been reached. You could also use the order to tell the broker at what price you want to enter the market. If ABC Company was trading at 44.00 and you wanted to buy that company at 43.00 you could use a buy limit order to take you into the market.

Limit orders are orders to buy or sell a stocks at a specific or better price. Limit orders may or may not get filled depending upon how the market is moving, but if they do get filled it will always be at the chosen price, or at a better price if there is one available. For example, if a trader placed a limit order with a price of 30.29, the order would only get filled at 30.29 or better, if it got filled at all. Limit orders are used when you want to make sure that you get a suitable price, and are willing to risk not being filled at all.


STOP LIMIT ORDERS (STPLMT):

Stop limit orders are a combination of stop orders and limit orders. Like stop orders, they are only processed if the market reaches a specific price, but they are then processed as limit orders, so they will only get filled at the chosen price, or a better price if there is one available. For example, if the current price is 30.25, a trader might place a buy stop limit order with a price of 30.30. If the market trades at 30.30 or above, the stop limit order will be processed as a limit order. If the market continues to trade at 30.30, the limit order will get filled at 30.30 or at a better price if there is one available. Stop limit orders may or may not get filled depending upon whether or not the market reaches the chosen price, and then depending upon how the market moves. Stop limit orders will trigger if the market trades at or past the stop price, so for a buy order, the stop price must be above the current price, and for a sell order, the stop price must be below the current price

This type of order specifies both a stop price where the trade is activated and a limit price to close the position. Once the stop is elected, the order becomes a limit order. This type of order is useful when the trader wants to buy or sell a breakout, but wants to control the price paid or received.

A stop-limit order differs from a stop order, which becomes a market order when the stop price has been reached or exceeded. A stop-limit order to buy must have a stop-limit price above the market price; conversely, a stop-limit order to sell must have a stop-limit price below the security's market price.

When To Use And How To Place A Market Order (MKT)

A market orders (MKT) simply tells your broker to buy or sell at the current market price. This is the most common order and it is used when you want to get the order executed immediately at the "market price". So this is preferable in fast market conditions or when you want to ensure that a position is taken and to protect against missing an opportunity. The broker will attempt to buy or sell the security at the current market price, whatever that price whatever that price may be. In an active market, market orders will always get filled, but not necessarily at the exact price that the trader intended. For example, a trader might place a market order when the best price is 30.00, but other orders might get filled first, and the trader's order might get filled at 30.01 instead. Market orders are used when you definitely want your order to be processed, and are willing to risk getting a slightly different price.

THERE IS NO SPECIFIED PRICE FOR THE MARKET ORDER

Example: Price of a stock ABC is: bid 30.00 ask 30.01

You place a market order, and it should be executed at the best ask, in this case it is 30.01. But, using a market order we instruct our broker that to us, it is more important that trade is executed, that at what price! As a result, our order can be executed at different price, for example at 30.02, because of a time lag between the moment we sent the orders and when it got to the exchange. But as a result, our order will definitely be executed.

Good thing about this type of order is that if you are in a loosing position  and want to close it immediately at whatever price is offered, then this is a type of order for you, because you will always get executed.

Bad part is the fact that if you use this type of order in illiquid stocks (or ETFs, futures etc), then your trade might be executed at worst price than the one you have expected.