This type of order is for investors who know the price they want for a particular transaction and want to manage market risk. Limit orders provide a guarantee that buy orders are not executed above a maximum price and sell orders are not executed below a set minimum.
Limit orders are often used to realize the highest profit, or avoid a loss. However, this type of order does not guarantee execution. Therefore every order placed should be understood and analyzed before being placed.
It's important to keep in mind that you can't completely eliminate market and investment risks. You can't predict when periods of market volatility will hit, so it is often best to decide what is most important to you based on your investment goals and objectives, whether it be price or making a trade at a specified time. In general, understanding order types can help you prioritize your needs, manage risk, speed execution and provide price improvement. For all of your securities transactions, check the trade confirmation you receive from your firm to make sure the price, fees and order information is accurate. For more information access: https://www.finra.org/investors/alerts/understanding-order-types-can-save-time-and-money.
Keep in mind that all orders are not handled the same way by your financial firm. Ask about your firm’s procedures for handling the execution of securities transactions and different order types, particularly during volatile market conditions. Market orders typically receive the highest priority, followed by limit orders.