When it comes to selling shares on the Australian Securities Exchange (ASX), investors have a range of options to choose from.
One of the most effective tools for managing how and when your shares are sold is the limit order.
By using limit orders, you can exercise greater control over the price you receive for your shares, avoiding the uncertainty and potential for unfavourable pricing that may come with market orders.
What is a Limit Order?
A limit order is an instruction you give to your broker to sell shares only at a specified price or higher.
This ensures that you won’t sell your shares for less than the amount you are willing to accept.
To use one example, you may choose to sell Telstra shares without a broker with Share Sales Direct which provides electronic search services to locate your security reference number or your holding identification number.
Unlike a market order, which is executed immediately at the best available price, a limit order may take longer to fill — or may not be filled at all — depending on whether the market reaches the price you’ve set.
How to Place a Limit Order
- Decide on the Price: The first step is to determine the price at which you want to sell your shares. You’ll need to consider the current market price of the shares, recent trends, and your desired profit margin. For example, if the current market price of a stock is $10, and you want to sell at $12, you would place a limit order at $12.
- Set the Quantity: Decide how many shares you want to sell. If you’re looking to sell all your shares, specify the full amount. However, you can also set a limit order for just a portion of your holdings.
- Choose the Expiry Date: Limit orders are typically set with an expiry date. You can choose for the order to remain active for the day, or extend it for several days, weeks, or even until a specific time in the future. If the order isn’t filled within the specified period, it will automatically expire.
- Monitor Your Order: Once placed, you should monitor the market to see if the price reaches your desired level. If the market price reaches or exceeds your set limit price, your order will be executed automatically. If not, you may need to adjust the price or cancel the order.
Advantages of Limit Orders
Limit orders give you control over the price at which your shares are sold, ensuring that you don’t accept less than your desired value.
Market orders can be subject to slippage, where the execution price is worse than expected, especially in volatile markets. Limit orders eliminate this risk.
You can set your limit orders for a time that suits you, and even adjust or cancel them if necessary.
Disadvantages to Consider
If the market price never hits your limit order price, your shares won’t be sold. This could be problematic if you need to liquidate quickly.
If there are not enough buyers at your limit price, your order may be partially filled, meaning only some of your shares are sold.
Using limit orders on the ASX allows you to maintain control over the pricing of your share sales, providing a strategic advantage in managing your investment returns.
While they do not guarantee that the order will be filled, they offer a greater degree of certainty compared to market orders, especially in volatile or illiquid markets.
By understanding when and how to use limit orders, you can enhance your trading strategy and make more informed decisions when selling shares.
