Buy limit orders are orders to a broker that involve purchasing a given stock or security only when the asset reaches a designated price. In the event that the security does not ate least reach the price specified in the buy limit order, the order to the broker remains unexecuted until such time as the investor chooses to withdraw the buy limit order.
Investors will sometimes choose to enter a buy limit order as a means of getting into a profitable venture. By setting a limit price on a particular security, it is possible for the investor to determine the point at which the investment would be worth pursuing. Generally, the price is locked in with anticipation that the security will continue to increase in value and eventually create a significant amount of profit from the transaction.
Placing a buy limit order is considered to be one of the safest approaches to acquiring new securities for the portfolio. In the event that the stock or bond does not reach the price set forth in the order, the investor does not have to be concerned about selling a holding that is not performing up to expectations. A second advantage is that a buy limit order does not tie up any of the financial resources in the possession of the investor. This includes the line of credit extended by a brokerage to the investor, as well as private credit lines and cash reserves.
A buy limit order will remain in effect until the transaction takes place and is completed, or when the investor chooses to withdraw the order. Usually, a buy limit order is withdrawn when the limit price is not achieved within a time frame that the investor considers to be reasonable. With relatively little risk and the potential to result in a great deal of additional profit for the investor, the buy limit order is a popular tool for many investors.