HOW TO BUY STOCKS USING LIMIT ORDERS
When you buy stocks online, you usually have a choice of a market order, a limit order, and a stop order. Each online broker platform might be different and there could be other options available like “stop loss”, “stop limit”, “market on close” and others.
The market order is the most common which just means that you are willing to buy the stock at the best price you can get at the time the order is made. This is the easiest thing to pick and you don’t have to make any decisions because you are agreeing to buy the stock at whatever price it is.
Limit orders are a little different because you can set limits for what you want to do. With limit orders, you can tell your broker that you want to buy the stock but only at a certain price.
For example, we can use Apple (AAPL) stock which has run up big in the last month and now is at an all time high over $290.00. Lets say that you really like the company and think that iPad sales are going to eventually drive the stock up even higher than the $290 price. You really want to buy the stock but you have some reservations about paying such a high price and would feel more comfortable if you could get it around $275.
Rather than sit at home all day every day watching and monitoring Apple stock to see if it goes down to $275, you can just put in a limit order online instead. What the limit order does is to tell the system that if the stock price of Apple ever drops to $275 or below, you want your buy order executed.
Limit orders can be used on the sell side as well when you tell your broker you want to sell a stock that is already in your portfolio but you are only willing to sell it if it reaches a certain price that you specify. For instance, lets say you did eventually buy AAPL at $275 with the limit order and you hope it goes up. You would be very happy if it went up to $350 and if it ever did, that is the price you would like to sell at. You would then tell your broker (online or live) to put in a sell order at a limit of $350 which would mean that if the stock ever reached $350, your sell order would automatically be executed.
Using limit orders when you buy stocks is great because they let you plan ahead and they help you take all emotion out of the decision making process. They help you avoid panic selling or buying in haste as you are thinking ahead of time what the best choice is. Of course, if you set a limit order that takes time to execute like weeks or months, you might want to periodically reevaluate things to make sure nothing has changed since you made your limit buy or sell order decision.
You can try making limit orders, market order, and stop orders at the free stock trader simulation game Wall Street Survivor. This is a great place to learn and practice making stock trades with the $100,000 in virtual money they give you to start out. For anyone who wants to see what it is like to make stock trades online before they do it with real money, Wall Street Survivor is the best place to do it. Did I mention its free? 
