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Lesson 15

Selling Stock with a Limit Order

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Hello! Welcome back to the "Executing Your First Trades" module.

In our last lesson, you learned how to buy a stock using a market order, prioritizing speed to get into a position quickly. Now, we'll focus on the other side of the trade—selling—and introduce a new order type that gives you more control.

Let's imagine you bought a stock and it has gone up in value. You have a specific price in mind where you'd like to take your profit, say $10 higher than it is now. But you can't watch the market every second of the day waiting for it to hit that price. How can you automate this process?

This is where the limit order comes in. Today's lesson will teach you how to execute a stock sale using a limit order on a brokerage platform. This is a fundamental skill for both long-term investors looking to secure profits and active traders setting price targets. You'll learn how to tell your broker, "Sell my shares, but only if I can get this specific price or better."

What is a Sell Limit Order?

In the previous lesson, you used a market order, which executes at the current best available price. A limit order works differently: it gives you control over the price.

A sell limit order is an instruction to your broker to sell a stock at your specified limit price or higher. If the market price never reaches your limit price, the order will not execute.

This is the key difference:

  • Market Sell Order: "Sell my shares now at whatever the best price is." (Prioritizes speed)
  • Limit Sell Order: "Sell my shares only if the price is at or above my target." (Prioritizes price)

To understand this foundational concept, let's start with a clear definition.

What Is a Limit Order in Trading, and How Does It Work?

The article 'What Is a Limit Order in Trading, and How Does It Work?' from Investopedia provides an excellent, clear definition. Pay close attention to the distinction between a buy limit and a sell limit order.

First, read the two bullet points under the heading 'What Is a Limit Order?'. Then, scroll down to the section 'Explain Like I'm Five' for a very simple and effective summary.

This image provides a great visual summary of the concept.

Limit Sell Order Example
This diagram shows that if the current stock price is $40 and you place a limit sell order at $45, the order will only be completed if the stock's price rises to $45 or higher.

The Anatomy of a Sell Limit Order

Just like when you placed a buy order, you'll use the trade ticket on your brokerage platform. The process is very similar, but with two key new elements: the limit price and the time in force.

Let's watch a video that explains and demonstrates how to set up a sell limit order.

Order Types in Fidelity | What Are Limit Orders, Stop Losses, Stop Limits, and Trailing Stops?

The video 'Order Types in Fidelity' by Matt Gore gives a practical walkthrough of setting up a sell limit order. It also introduces the important concept of how long your order should remain active.

Watch from 00:55 to 02:38. Focus on how a sell limit order is used to sell shares if the price rises to a certain amount. Pay close attention to the explanation of 'Day' vs. 'Good Till Canceled' options.

Based on the video, let's break down the fields on the trade ticket:

  1. Action: Sell. You're selling shares you already own.
  2. Quantity: The number of shares you want to sell.
  3. Order Type: Limit. You'll select "Limit" instead of "Market."
  4. Limit Price: This is the most important field. It is the minimum price per share you are willing to accept. The order will only fill at this price or a higher one.
  5. Time in Force (or Term): This tells the broker how long the order should remain active. The two most common options are:
    • Day Order: Your order is only active for the current trading day. If it doesn't execute by the market close, your broker automatically cancels it.
    • Good 'til Canceled (GTC): Your order remains active day after day until it is either executed or you manually cancel it. (Note: Most brokers automatically cancel GTC orders after 60-90 days if they haven't been filled).

Step-by-Step: Placing the Order

Now let's walk through the full process of placing a sell limit order using a brokerage interface.

This article provides a perfect, practical example. Imagine you bought shares of Walmart (WMT) and now want to sell them for a profit once the price increases by about 20%.

How To Guide: Part 7 - Advanced Trade Types (Limit Order ...

The 'How To Guide: Part 7' from Investopedia will walk you through setting up this exact trade on a simulator. It shows you precisely how to fill out the trade ticket.

Read the section under the heading 'Limit Order'. Follow the steps shown for inputting the trade instructions for a limit sell order on WMT. Notice how they set the Transaction type, Quantity, Limit price, and Term.

The interface will look slightly different on every platform, but the core information you provide is always the same, as shown in this simple visual.

Setting a Limit Order on Robinhood
This image from a Robinhood tutorial clearly shows the core concept: you set a limit price, which is the minimum price you're willing to accept, and the order will only execute at that price or higher.
Test your understanding!

You own 25 shares of a company called "Innovate Corp" (ticker: INVT). The stock is currently trading at $180 per share. You believe it will go up to $200, and you want to sell your shares automatically if it reaches that price.

On the trade ticket, what would you enter for the following fields?

  • Action:
  • Quantity:
  • Order Type:
  • Limit Price:
Show answer
  • Action: Sell
  • Quantity: 25
  • Order Type: Limit
  • Limit Price: $200

You would also choose a "Time in Force," likely "Good 'til Canceled" (GTC), so the order stays active until your $200 price target is met, even if it takes more than one day.

Why and When to Use a Sell Limit Order

As the Investopedia guide mentioned, there are two primary benefits to using a sell limit order, which are worth emphasizing because they connect directly to your interests in psychology and developing good investment habits.

  1. Automating Your Strategy: You can set your profit target ahead of time and walk away. You don't need to be glued to your screen, which is essential for managing your investments without letting them take over your life.
  2. Enforcing Discipline: Greed is a powerful emotion in investing. When a stock is rising, it's tempting to hold on for "just a little more," even after it has hit your target. This can lead to watching your profits evaporate if the stock suddenly reverses. By setting a limit sell order—perhaps right after you buy the stock—you commit to your strategy and take the emotion out of the decision.

Conclusion

You have now added a powerful tool to your investing toolkit. While a market order gives you speed, a limit order gives you price control. You can now confidently place an order to sell a stock at a specific price target, helping you to execute your investment plan with discipline and precision.

Here are the key takeaways:

  • A sell limit order lets you set a minimum price at which you are willing to sell your shares.
  • The order will only execute at your limit price or higher.
  • You must set a Time in Force—either a Day Order (expires today) or Good 'til Canceled (stays open).
  • Unlike a market order which fills instantly, a limit order becomes an "open" or "working" order that waits for the market price to meet your condition.
  • Using sell limit orders is a great way to remove emotion and automate your profit-taking strategy.

In our next lesson, we will broaden our horizons from trading individual stocks. We will explore what an ETF (Exchange-Traded Fund) is and how it differs from an individual stock. This is a crucial step toward building a diversified, long-term portfolio.