How to Purchase Stop Limit Stock
- 1). Understand what market, stop, and limit orders are. Market orders are simply the standard order you place with a broker. Once the order is placed, it is executed at whatever the market price is at the time of the transaction. A stop order will not be executed until the market price reaches a stated figure. At that point the stop order becomes a market order and executes automatically. A limit order will execute only if the price is below (or above, depending on your specifications) a certain level. Stop-limit orders combine a top and a limit order. The order won't execute until the stop price is reached, but will only be completed within the limit price.
- 2). Decide on the stop and limit prices you want to designate for purchasing a stock. Let's say you think a stock is undervalued at its current market price of $20 per share, but you don't want to buy unless the stock shows strong indications it's ready to "make a move," so you place a stop-limit order. You decide to buy only if the price reaches $25 per share (a pretty good indication the stock is in an upward trend). That's the stop part. However, you don't want to pay too much, so you also place a limit to buy the stock only if the price is equal to or less than $26 per share.
- 3). Call your broker and place your stop-limit order to purchase the stock. Be sure to state the number of shares you want, the stop price, and the limit price. Keep in mind that if the stock never reaches the stop price or if it isn't executed before it reaches the limit price, the order will never be completed.
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