Can someone please explain the difference between the two of these and in buy & sell terms.
The Schweser notes state “A limit order places a minimum execution price on sell orders”
Yet in an exam asks “Compared to a market order to sell, a limit order to sell will specify a”
a. Maximum price above the current market price
b. Minimum price equal to or less than the current market price
c. Price that can be higher or lower than the current price
B is incorrect and C is correct despite the schweser notes stating also “A limit order to sell is placed above the current market price”
So is one of the above incorrect or is there just a better explanation for this? Thanks!
Limit orders are the first acceptable price for your positional transaction.
If it’s a buy order, it’s the lowest you are willing to start paying (you want to buy low).
It it’s a sell order, it’s the most you are willing to start selling (you want to sell high)
Stops are the opposite, it’s used to stop the hemorrhaging.
If it’s a stop buy order, you are wanting to buy the security because it keeps going up (you want to buy low, not high!). You see this with short positions because they only profit if it goes down, and if it starts rising you want to cover it quick.
If it’s a stop sell, you want to stop the bleeding as it loses price (you want to sell high, not low!). People use these when they are on vacation and can’t check on their positions.
The answer to your question is kinda bull, but technically, yeah, you can set sell limit below the current market price, it will just execute immediately.