LIMIT ORDER Meaning and
Definition
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A limit order is a type of order placed by an investor or trader to buy or sell a specified quantity of a security at a designated price or better. It sets certain restrictions on the execution price, ensuring that the transaction is carried out only at or below a specified high price or at or above a certain low price.
When placing a limit order to buy, the investor specifies the maximum price they are willing to pay for the security. Conversely, when placing a limit order to sell, the investor determines the minimum price they are willing to receive. By doing so, the investor aims to control the price at which their trade is executed, thereby mitigating the risk of incurring losses due to unfavorable market conditions.
Limit orders are commonly used by investors who want to have more control over the price at which they enter or exit a position. They allow for greater precision in executing trades and provide a level of protection against unexpected price fluctuations. However, it is essential to note that there is no guarantee that a limit order will be executed, as it depends on the availability of matching bids or offers at the specified limit price.
Overall, limit orders serve as a useful tool for investors to manage their trades efficiently while having greater control over the execution price, enabling them to optimize their investment strategy.
Common Misspellings for LIMIT ORDER
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Etymology of LIMIT ORDER
The term "limit order" in the context of finance and trading originated from the combination of two different words: "limit" and "order".
The word "limit" originated from the Latin word "limitis", which means "boundary" or "border". In the context of financial markets, a limit refers to the price boundary or threshold set by an investor or trader to execute a trade. This price boundary can be either the maximum price (in the case of a sell or short order) or the minimum price (in the case of a buy or long order) at which they are willing to buy or sell a particular asset.
The word "order" refers to a directive or instruction to buy or sell a specific financial instrument. It comes from the Latin word "ordinare", which means "to arrange" or "to put in order".
