In the financial markets, there is a highly organized and systemic mechanism of trading which leads to a seamless transaction of securities worth billions of dollars every day. Order placement is one such part of this mechanism.
An order is simply a willingness of a buyer or a seller to buy or sell a specific quantity of a security at the desired price at any point of time. This willingness is put forth in an exchange in the form of confirmation is called an order.
We will be discussing the Limit order here.
Limit Order The price is ever moving, and the securities frequently become overpriced and underpriced or sometimes the movement of price is way too erratic, especially around any major announcement by the company. Many times, the buyers and sellers are willing to transact at their own desired prices which is different from the current price. A limit order does this job.
A limit order is an order in which the buyer or the seller defines a better price at which he/she is willing to transact. The order will only get triggered when the current market price comes to the desired price. These prices are lower than CMP in the case of a buy order and higher than CMP in case of a sell order as a lower price to buy, and higher price to sell is always preferred.
While dealing in securities using the limit orders, an investor or a trader can guarantee to transact at a better price if the order gets triggered. Limit orders are beneficial when the investor/trader is not watching the prices movements through the day as these orders get placed and sit in the exchange till, they get filled, or the market closes.