Value Limit Orders vs. Quantity Limit Orders
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Important: This article is for general guidance purposes only and should not be considered investment advice. If you are unsure about the suitability of an investment, please seek out advice. When you invest, your capital is at risk.
Often as investors we want to think in pounds and pence.
It’s sometimes easier, for example, to think about purchasing £100 worth of stock rather than trying to gauge the value of 24 shares of a company.
That’s why the CMC Invest app allows you to place limit orders based on the value of shares you want to purchase, at a predetermined price, as well as the quantity you want to purchase. Not all investment providers allow limit orders to be placed by value.
Below, we’ll briefly look into the pros and cons of placing limit orders by value or by quantity. One isn’t necessarily better than the other and, ultimately, it may come down to what method you prefer as an investor.
If you missed our primer on what limit orders are and how to use them in the CMC Invest app, you can click here.
Value Limit Orders
When you place a buy limit order by value, you are selecting the monetary amount you want to spend on a company’s stock when its shares hit a certain value.
This can be useful for keeping tabs on your total expenditure. You’ll know the exact amount of money that will be invested if/when the limit order executes.
Some investors prefer this. There’s no need to calculate what the shares of a company you’re seeking to buy represent in monetary terms.
It can be particularly useful to use value limit orders when selling assets. If you want to raise £1,000 by selling a position in your portfolio, you don’t need to total up the number of shares you need to part with – and the price you want to sell them at – to realise this.
Instead, you just set the monetary amount of a stock you want to sell and the price at which you want to sell it. If the limit order executes, you’ll redeem this amount of cash from your sale.
Quantity Limit Orders
Perhaps seen as a more traditional method, you can also set up limit orders to buy or sell a specific quantity of shares when a desired price is met.
There are a couple of reasons why you may want to specify the number of shares you wish to buy/sell using a limit order.
Let’s say you’re seeking to purchase a stock because you’re attracted to its dividend. Since dividends are paid on a “per share” basis, you may want to purchase a set number of shares if you’re looking to generate a certain amount of income from your investment.
Some investors also prefer buying a round number of shares. They find it easier to build a portfolio by purchasing blocks of 50, 100 or 500 shares in a particular company and then selling these in similar size portions.
If you want to completely exit a position at a set price, using a quantity limit order may also make sense – you simply opt to sell the exact number of shares you own.
Ultimately, whether you place limit orders by value or quantity is a personal choice. Both are viable options and the result – i.e., buying or selling an asset at a desired price – will be the same.
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When you invest, your capital is at risk.