First, remember that the objective is to buy low and sell high.
Limit = “or better”. So if you want to buy at Limit 35, that means you want to buy at 35 or better. And since you’re buying, you want to buy at 35 or lower. If you’re selling at limit 40, that means you want to sell at 40 or better.
Stop = “stop the bleeding”. Say you buy a stock at 100, and want to stop the bleeding at 90. You would issue a stop 90 order. It would only sell once the price drops below that.
Limit is best price execution. Stop is price at which you mention. Even I am not very sure if I have explained it to you correctly. Go check the book once if this works and revert back. Help lazy people like me
Nope: _ market _ is best (prevailing) price execution.
Suppose that a stock is selling at $25/share.
If I own 100 shares and want to protect myself against a large loss, I issue a stop (loss) sell order at, say, $20/share. If the price drops to (or below) $20/share, my broker sells my shares at the best (highest) price he can get.
If I’m short 100 shares and I want to protect myself against a large loss, I issue a stop (loss) buy order at, say, $30/share. If the price rises to (or above) $30/share, my broker buys shares at the best (lowest) price he can get.
If I’m a technical analyst and think that $30/share is a resistance level, I might issue a limit buy order at $30 $32/share (assuming that if the stock breaks through the resistance level, its price will continue to rise). If the price rises to (or above) $30 $32/share, my broker buys shares at the best (lowest) price he can get.
If I’m a technical analyst and think that $20/share is a support level, I might issue a limit sell order at $20 $18/share (assuming that if the stock breaks through the support level, its price will continue to fall). If the price rises to (or below) $20 $18/share, my broker sells shares (short) at the best (highest) price he can get.
in stop orders is it possible that the price at which the stock is bought or sold would be the one which we mention, like in the first example you gave can the order be executed at $20 or would it be always below $20?
My mistake: I wasn’t as clear as I should have been. I’ve corrected the numbers above, but I’ll repeat the corrections (highlighted) here:
If I’m a technical analyst and think that $30/share is a resistance level, I might issue a limit buy order at $30 $32/share (assuming that if the stock breaks through the resistance level, its price will continue to rise). If the price rises to (or above) $30 $32/share, my broker buys shares at the best (lowest) price he can get.
If I’m a technical analyst and think that $20/share is a support level, I might issue a limit sell order at $20 $18/share (assuming that if the stock breaks through the support level, its price will continue to fall). If the price rises to (or below) $20 $18/share, my broker sells shares (short) at the best (highest) price he can get.