A limited order is a type of order that is placed on the stock market by the investor in which a maximum price is set at which you want to buy or a minimum price at which you want to sell, establishing for this purpose, an expiration date of the order that generally is usually a maximum of 90 days.
If the market does not sweep that price or lower prices if we make a purchase or otherwise if we make a sale during those 90 days, the order would be automatically canceled.
This type of order is more conservative than the market order, since in it we guarantee a maximum purchase price in case of acquiring long positions or a minimum price at which you want to sell through the introduction of short positions with derivative products . When entering this order, it may not be executed for all the titles since the market will sweep those in which there is a counterpart.
Examples limited orders
- We assume an investor who wants to buy 1,000 shares of X company with little liquidity with a limited price of 4 euros with an expiration date of 90 days that we can change as we see the evolution of the market. Let’s look at the following table:
In this example, we can see how when entering a limited purchase order of 1,000 titles at a price of 4 euros, the order is linked to sales at different prices:
- 200 titles at a price of 4 euros.
- 200 titles at a price of 3.99 euros.
- 300 titles at a price of 3.98 euros
Finally, in this session a total of 700 titles are crossed from the 1,000 titles that we had introduced. Therefore, 300 titles are pending execution pending execution until the expiration period of our order, which is 90 days. It should be noted that most broker or financial intermediaries, usually not charge any fee for the modification of the orders in price, number of securities and maturity. In this specific example, our broker will charge us commission for three operations and the cost will be higher.
- We suppose an investor who wants to buy 1,000 shares of X company with a lot of liquidity with a limited price of 4 euros with an expiration date of 90 days that we can change as we see the market evolution. Let’s look at the following table:
In this case, the execution is very correct since all the titles are bought in a single tranche and at the marked price. Therefore, the broker will charge us a single commission, in addition to the fees of the stock market, brokerages, custody of the securities and other financial events inherent to any value such as capital increases , splits , against splits or the payment of dividends .