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Finance Glossary

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Limit Orders


You have a broker to help you in buying or selling securities, but the cost of securities changes so often that you can quickly get in over your head. When you tell your broker to buy a certain stock, the price of that stock might go up a lot before the sale goes through, meaning you've just spent a lot more than you intended to.

So what can you do?

You can submit a limit order, where you set a limit on how much you will pay or how little you will sell a given security for. The broker can only buy a stock up to a certain price amount (that you set) or can only sell for above a certain amount. 


A buyer might be looking at GOOG trading at $500 a share but only wants to pay $490 a share for it, so she'd type in the "limit" box on her E*TRADE account 490, 100 shares. If GOOG trades down to that level during the time at which the limit trade is set, then she is the proud new owner of 100 shares of GOOG. If it never gets there and takes off screaming to $600, then she's out of luck and never gets the ride.