Bid and ask price

Understanding bid and ask price is important in creating the perfect order. A bid price is the price at which the buyer is willing to pay. Whereas, an ask price is the price at which the seller is willing to sell. An order is filled only when the bid and the ask price meet.

• If you want to instantaneously buy shares, you have to enter the price matching the ask price.
• If you want to instantaneously sell shares, you have to enter the price matching the bid price.

Stop limit order

A stop limit order requires 2 prices:

• Stop price: The price at which this order will be triggered.
• Limit price: The price at which the shares are bought or sold.

A stop limit order is typically used when there is a price breakout, either up or down.

For example, the share price of ABC is currently at $1.5 and there is a huge resistance at $2. You believe that if the price breaks over $2, then it will shoot to the moon. In this case, you can create a buy stop limit order with:

• Stop price at $2
• Limit price at $2.05

When ABC reaches $2, the order is activated and will buy ABC shares only if it hits $2.05.

Conversely, you believe that if ABC drops below the support line of $1, then it will go to $0. Then, you can create a sell stop limit order with:

• Stop price at $1
• Limit price at $0.91

When ABC drops to $1, the order is activated and will sell ABC shares only if it hits $0.91.