What Does "At the Lowest Possible Price" Mean?
The phrase "at the lowest possible price" is an instruction that accompanies a buy order for stocks or other investment securities. It instructs a brokerage to make the purchase for the smallest amount that can be found on the market.
This type of trading designation does not specify a maximum or minimum price at which the order must be filled. Rather, it only instructs the broker to secure the lowest possible price for the security and to do so as quickly as possible.
- At the Lowest Possible Price is an instruction that accompanies a buy order for securities.
- It instructs the broker executing the trade to seek the lowest price possible for the security.
- This type of designation is most commonly used in relatively illiquid markets, such as certain derivative markets, or among traders of firms with very small market capitalizations.
Understanding "At the Lowest Possible Price"
At the Lowest Possible Price requests are more commonly found in markets with limited liquidity or low trading volumes, or among traders of firms with very small market capitalizations. This is because investors trading illiquid securities have fewer options when it comes to executing a buy or sell order. The market for a thinly traded security is more limited and other parties are better able to demand pricing that may not be ideal for the investor.
For example, investors looking to trade currency options in exotic currencies (i.e., currencies other than the dollar, euro, pound, or yen) often use At the Lowest Possible Price.
While investing in securities in limited markets may bring an investor a higher rate of return than investments made in more developed and liquid markets, the investor does run the risk of not being able to quickly enter or exit the market. In these circumstances, investors often prefer to purchase securities at the lowest possible price because it provides the greatest opportunity for profit while curtailing their risk.
Of course, even though the investor may want to pay the bare minimum when executing a buy order, it is possible that they will have to accept a higher price. Still, using an At the Lowest Possible Price request ensures that the investor gets a low price, even if it is not as low as they desired.
The opposite of At the Lowest Possible Price would be a request to execute the order "at the market"—that is, buy at the current price of that security, whatever it may be. At the market is the most basic and common sort of buy order: the default position, so to speak.
At the Lowest Possible Price requests accompany market orders. Market orders are transactions that involve buying or selling a security immediately. They guarantee that the order will be executed, but do not guarantee the execution price. Often the transaction goes through at the current market price of the security. At the Lowest Possible Price, if it's attached to the order, is a request, but not a mandate.
Investors who do want more of a guarantee on the security's price, further reducing their risk of paying too much, can use a limit order. Limit orders are orders to buy or sell a security at a specific price or better. A buy limit order can only be executed at the limit price or lower, and a sell limit order can only be executed at the limit price or higher. Putting in a buy limit order would allow the investor to specify a maximum, or limit, to the price they pay. However, unlike with market orders—which go through no matter what—the buy-limit order won't be executed unless the asking price is at or below the specified limit.
Other sorts of limit orders include:
- A stop order, aka a stop-loss order, is an order to buy or sell a stock once the price of the stock reaches the specified price, known as the stop price. When the stop price is reached, a stop order becomes a market order.
- A stop-limit order is a variation on the above. It requires the setting of two price points: the start of the specified target price for the trade and the outside of the price target for the trade. A timeframe must also be set. The stop-limit order will be executed at a specified price, or better, after a given stop price has been reached. Once the stop price is reached, the stop-limit order becomes a limit order to buy or sell at the limit price or better
- A buy-stop order is entered at a stop price above the current market price. Investors generally use a buy stop order to limit a loss or protect a profit on a stock that they have sold short. A sell stop order is entered at a stop price below the current market price. Investors generally use a sell-stop order to limit a loss or protect a profit on a stock they own.