Buy Limit Order

A Buy Limit Order is an order to buy a specified number of shares of a stock at a designated price or lower, at a price that is below the current market price. Your limit price, in other words, is the maximum price you are willing to pay to purchase your shares.

Once a stock's price trades down to or below the price you have specified, your shares will then be purchased at that price or lower IF the stock's price continues to trade at or below your specified price long enough for your order to be filled.

Example: Suppose you want to own 100 shares of Ebay Inc. (EBAY), and it is currently trading at $30 per share. You would like to buy the shares if the stock's price drops to $27 or less, as you feel the stock's current price of $30 per share is slightly overvalued.

You place a Buy Limit Order @ $27 on 100 shares of EBAY. Now suppose the price trades down to $27. As long as the price remains below $27 per share, your shares would then be bought at the next best available price that is $27 per share or lower.

The main benefit of a Buy Limit Order is that you may be able to buy the shares that you want at a price that is below the current market price and you are able to set a maximum on how much you're willing to spend per share. Buy Limit Orders are great for buying short-term market pullbacks.

But, if the stock's price reaches your limit price, but then changes direction to the upside before your order is filled, you will not enter the trade. Also, if the price never reaches your limit price, you again will not own any shares.

Last, but not least, if the price drops to your limit price and you enter the trade, there is no guarantee that the price will not continue to drop further.

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