by Alysha Brady

Created on: May 24, 2008

Most people will agree that they feel like they are paying too much for gas, food, clothing, and other everyday necessities. With daily expenses going through the roof, who can afford to overpay for stock? The stock market has gone through a rough cycle this past year, but with inflation on the rise and savings account rates down in the gutter; stocks look very appealing right now. As you enter the world of trading, you will quickly come across a whole new lexicon an entire sublanguage that you must master in order to make your money work for you. One crucial term in that lexicon is "Limit Order."

In this article, I'm going to break down the explanation of Limit Orders into four short and straightforward parts:
1. A quick definition
2. Why you need to know this
3. How to use a Limit Order
4. (and probably the most important part) How to use Limit Orders to make money

The first part of the explanation is easy to cover. A Limit Order allows a buyer (you) to set your own price for a stock. In other words, I can place a Limit Order for Citigroup at $21 when the stock is currently going for $24. If the price of Citigroup drops to $21 or lower, my brokerage firm will then, and only then, will buy it for my portfolio.

Many beginner investors aren't familiar with Limit Orders, and most individuals building their own portfolio may never place a Limit Order. However, the smart investor does use this tool. On the stock exchange, prices for stock are constantly changing by the time an individual investor tracked the targeted stock throughout the day until it hit a price he would like to buy at, then got in touch with his broker, then placed the order, and then waited for the broker to buy the stock, it would no longer be available at his desired price. And, as previously mentioned, overpaying for a stock just doesn't make any sense. You need to know what Limit Orders are in order to increase the chances of getting a stock for a price you are comfortable with, especially in today's volatile market.

Using, or placing, a Limit Order is relatively simple. If you call in to place your order, simply tell your brokers: "I would like to buy X number of shares of Company Y with a Limit at $Z." If you buy stocks online: on the order page select "Limit" and then enter the price you would like to buy at. With Limit Orders, your order may sit for awhile as the brokers wait for the stock to reach your targeted price. You should be warned that if the stock never reaches or dips below your Limit,

• 1
• 2
• Next Page >>