Limit orders revolve around the stock price 🤑
But, how are stock prices actually set?
Well, they are roughly set by supply and demand ⚖️
A dive deeper into the supply and demand of stocks reveals the 🥁Bid-Ask Spread 🥁
Think of the stock market like a 9-5 auction party 🧑⚖️
Every day, a lot of people come to sell some stock, others hope to buy some and many sit and observe 🍿
Just like an auction item, investors are really bidding when it comes to stock 💡Every order request is a bid!
Then there is the auctioneer, or seller, who has an asking price 🤔This is the ask!
Even though you don’t directly submit your own bid and ask, the people running our markets do! 😮
You indirectly submit your own bid and ask when you decide to buy or sell a stock at a certain price 🤔
The difference between the bid and ask is the bid-ask spread, which eventually gets us to how the stock price is settled 🏷️
So, to bring us back to limit orders. . .
Limit orders are the closest you can get to submitting your own bid and ask 🤑
Limit orders help investors to protect themselves from large swings in the market because they cannot buy or sell an asset or security for a higher or lower price than what they specified in the order ✍️
With limit orders, investors can take advantage of bid-ask spreads to make more controlled decision 🥳
