What's a limit order and how does it work?
Limit orders give you more control over the price you buy and sell shares for. You enter the exact number of shares you want and the price you want to buy or sell them.
If the market price matches yours (or is better!), your order will be completed. If it doesn’t reach your set price, the order will be automatically cancelled at market close and you won't be charged a brokerage fee.
If for any reason your order is partially completed (e.g. you place an order for 100 shares but there are only 50 available at your price), then you will be charged a brokerage fee. Because of the size and number of trades going through the US share markets, a partial completion rarely happens.
Why use limit orders?
You control the buy/sell price and are not impacted by market price fluctuations. You only buy or sell the shares at the price you specify.
How do they work?
Buying shares using a limit order lets you set a price you want to buy the share at. If the price reaches this or lower, the order will be filled. If it doesn’t reach your set price, the order will be automatically cancelled at market close.
You want to purchase Tesla shares but they're $231.95. You want to buy these shares, but only if they reach $229.
You can use the limit order to attempt to buy your shares at $229. If the price for Tesla reaches $229 or lower before next market close your order will be filled.
Selling shares using limit orders lets you sell your shares at a price that you're happy with. If the price reaches this or higher, the order will be filled. If it doesn’t reach your set price, the order will be automatically cancelled at market close. This helps lock in profits in a volatile market.
You've got 10 Amazon shares that you paid $1870 for. You want to sell, but they're only trading at $1871.15 and you think they might go higher. You can set a limit order to sell your shares at $1874.43. If Amazon prices reach $1874.43 or higher before next market close they'll automatically sell, locking in some profit.
What you should know about limit orders
- You can only buy and sell full shares.
- Limit orders are automatically cancelled at the end of each market day
- The full amount of your order is immediately deducted from your available balance until it's filled, you cancel it, or it's automatically cancelled at the end of the market day.
- Your order may not be filled if the market price doesn't reach your desired price.
- A limit order is not a stop-loss order. If you set a limit order to sell at below market rates the order will be either filled automatically if markets are open or as soon as the market opens. Hatch won't be held liable for any losses you've incurred by selling at below market rates.
Still not sure? Find out the difference between Market orders and Limit orders.