What is limit order and how is it used?

This is Ravi. He wants to know about limit order and how it is used. Ashish, his friend and a seasoned investor with Angel Broking explains:

Suppose the shares of Lakshmi Textiles are trading at one hundred and fifty rupees per share. You want to buy shares in this company but think the market price is too high. So you set one hundred and twenty five rupees per share as the maximum price at which you are willing to buy. If the market value of the shares dips to 125 rupees, Angel Broking, your trusted broker will purchase the shares of Lakshmi textiles for you.

Similarly, if you hold shares of Lakshmi textiles, you can set an amount, say 175 rupees as the minimum price at which you will sell your shares. As soon as the market value of the shares increases to 175 rupees or higher, your broker will sell your shares. If the market value

remains below 175 rupees he will continue to hold these shares. Limit orders therefore help you control the price at which you buy and sell stock. Ravi now understands what limit order is and how to use it.