You don’t have to get confused with what a limit price is. We will discuss limit price & how its different from stop loss price in this post. There are multiple types of orders in stock markets. Each order type serves a different purpose.
What is a limit order
Some orders help you in limiting your losses and some help you in buying or selling stocks or other financial asset within a specific price band/levels or price. Same way we have limit order in which you can specify the limit price.
What does limit price mean in stocks
Limit price in stock markets means buying or selling stocks within a specific price range or specific price. Let’s say for example you want to buy ABC limited company stock currently trading at 105 at 100. You can place a limit order and specify a limit price of 100 or provide a price range of 98-100. Your order will get executed exactly at 100 or between 98-100 or below 98. Limit price is the part of limit order.
How to set a stock limit price
Its pretty easy to set a stock limit price. Simply use your trading terminal or dashboard to set it. You can even call your stock broker to set it up for you. But before setting up a stock limit price, do your due diligence in identifying good support levels or profitable price levels for your trade or investment. If you are following a strict risk management rules, setting up a stock limit price helps you in minimizing loses.
My 10 % rule for setting up a stock limit price
When I invest in a stock, my maximum loss percentage per trade is 10%. I don’t want to it to increase further. When I look to buy a new stock for investment, I always make sure that the entry price is within the 10% range of my stop loss price. If I want to buy XYZ company stocks trading at 300 and my maximum stop loss is 250, I will buy XYZ company stock only at 275 or less. Buying XYZ company stocks above 275 will make my overall risk of more than 10%
Difference between limit price and stop price
A stop price or stop loss is used to minimize loses in an existing position or trade. Whereas a limit price is used within a limit order to enter a new position or trade at a specific price or price range.