What are the major types of Limit Orders I should know about?

[Eric]

 

[Sam]

Hi Eric,

There are currently four major types of limit orders that is; buy limit, sell limit, buy stop, and sell stop.
Buy limit is an order that directs that security must be bought at a price similar to or below a specific limit. The success of the trade depends on the limit order being placed on the correct side of the market to guarantee stock price increment. Buy limit orders are therefore placed at a price below the prevailing market bid.
Sell limit just like a buy limit order; becomes an order that ensures that security is sold at a bid or price above a specifically predetermined limit. The order is placed at a limit at or above the prevailing market asks thereby guaranteeing that there will be an improvement in the selling price.
A buy stop is an order to buy a security at a price above the prevailing market bid. This kind of order is only activated when the specified price level has been reached. A buy stop order is converted to a market or limit order as soon as the set stop level is reached. The opposite of a buy stop order is a sell stop order.
A sell stop is an order to sell a security at a predetermined price which has been purposely set below the current market ask in order to generate profit. Just like in the case of a buy stop order, a sell stop order becomes active only when the set price limit has been reached.
Finally, other than knowing about these four types of limit orders, as a stock trader, you should also be aware of other additional stock order types including stop-loss order, a stop-limit order among other common terminologies used in stock trading.