Limit buy order

Definition: An offer to buy one or more shares of a company’s stock but only for a certain maximum price.Example: Tyrese would like to buy 10 shares of NOP Industries. But, he’s a little hesitant because the price has quickly risen from $40 to $55. He’d be really happy if it dropped back to $50 but he’s not able to watch it constantly. Therefore, he offers to buy 10 shares if the price drops to or below $50 per share.

Investeach explains: An offer to buy shares in this manner, which is making a bid to purchase shares, is accomplished through the entry of a limit buy order that can be done on line or over the phone with a stock brokerage firm. For a publicly-held company (ie: a company whose shares are available for purchase and sale by the broad investing public) of any reasonable size, there will be many of these buy limit orders existing at any one time. In order to make some sense of them, computers sort and display the orders from the highest bid price to the lowest:

Bid Price   # of shares to buy at this price

$ 24.98     200
$ 24.96     100
$ 24.93     300

The most important limit buy order is the one with the highest price and it is known simply as “the bid”. This is because a person wanting to sell her shares of the company’s stock right now – and who doesn’t have the luxury of specifying a minimum price that she will take – will sell her shares to the buyer bidding the highest amount per share. We say that she will receive the bid.

Riddle me this:

1. Is a person who enters an bid order wanting to buy stock in a company or sell stock in it?
2. What is the significance of the limit price a person sets on a buy order?
3. How are bid orders actually placed?
4. Of all the bid orders that exist at any one time, which one is the most important, and why?

2017-10-01T17:52:15+00:00