Once you have chosen your online broker and have placed your very first trade, you may or may not have noticed that your broker offers different types of orders (market, stop loss, limit). A limit order is a special order that will only be triggered when the price of a stock reaches a specified target. For example, the current market price of AAPL is $100. Investor Joe wants to buy this stock but knows that it is very overpriced. Investor Joe is willing to buy AAPL if it drops to $80, so he places a limit order for $80. The stock plunges to $81 due to a bad earnings report. It continues to drop aggressively and completely skips the $80 mark. Investor Joe thought his order would be filled at $80, but because the price skipped $80, the order wasn’t filled because the stock was volatile.

Pros:

Good strategy if you are on vacation or away from your computer

Cons:

If the price is off by one cent, the order will not be filled. This could produce further losses if you try selling a stock with a limit order. Your limit price could be skipped and the stock will not be sold. A stop loss order is much better when selling a stock.

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