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The Difference between a Limit Order and a Stop Order

Navigating the stock market requires investors and traders to have a sufficient amount of knowledge such that each buy, hold, and sell decision is informed. Should investors not feel confident in their trading and investing capacity, they may enlist the services of a professional stockbroker such that they can best navigate the stock markets with the money you allocate for them and as per your preferences.

- Understanding a Limit Order and a Stop Order 

Investors can provide their brokers with different orders based on how they would like their broker to trade their shares. Both, limit orders and stock orders, help indicate to brokers that the market price at which the stock in question currently prevails isn’t desired. Instead, the need of the hour is that the order is executed on the investor’s behalf by the broker once the stock price mirrors the price indicated by the investor.

What are Limit Orders: Limit orders are given to brokers such that they know when to buy or sell stock when it reaches a specified price or one superior to that.

What are Stop orders: Stop orders aren’t  visible to the market and give rise to a market order once the specified stop price has been acquired. Although this order avoids the risks associated with no or partial fills, they can lead to investors having their orders filled at prices far worse than originally anticipated.

Demat account opening has never been easier and can allow for these orders to be carried out with ease.

- Differences Between a Limit Order and a Stop Order 

Differences between limit orders and stop orders are as follows.

1. Limit orders indicate a price that is the least acceptable value with which the trade can take place. Conversely, stock orders are used to indicate a price such that an actual order can be triggered once the directed price has been traded.

2. While limit orders are visible by the market, stop orders aren’t visible until they have been set in motion i.e., triggered.

3. Stop limit orders require the investor to specify to their broker a stop price in addition to a limit price which might not always be identical to one another.

Conclusion -

Open a Demat account such that you can trade the stock markets and better understand each of these orders. It is important to do due diligence prior to making any buy, sell or hold decisions pertaining to securities  you might have your eye on. This preliminary research can reduce the potential of your incurring any risks and / or losses and can potentially allow you to accrue greater returns.  Now that you have a better understanding of what the difference between a limit order and a stop order is and how to buy and sell with them, you can look at market conditions, your financial goals and assess your risk tolerance prior to making use of said limit orders.


Related Articles: Understanding the nuances of setting stop losses for trading | When to use market orders and when to use limit orders | How to execute Stop Loss in Share Market


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