Trading
Limit Order
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A limit order is an order to buy or sell a security at a specific price or better: a buy limit order executes only at the limit price or lower, and a sell limit order executes only at the limit price or higher.
How a limit order works
The SEC's Investor.gov guide to order types defines a limit order as an order to buy or sell a security at a specific price or better, and states that a buy limit order can only be executed at the limit price or lower while a sell limit order can only be executed at the limit price or higher. By contrast, Investor.gov describes a market order as an order to buy or sell immediately that guarantees execution but not the price, generally filling at or near the current bid for a sell or ask for a buy, and warns that the last-traded price is not necessarily the price a market order will receive. A limit order can be entered for the day only or left open until cancelled by the investor.
Hypothetical example: a stock is quoted $50.00 bid / $50.10 ask and an investor enters a buy limit at $49.80 for 100 shares. If the price dips to $49.80, the order fills for at most $4,980; if the stock rises instead, it never fills. See bid-ask spread and market order.
When to use a limit order instead of a market order
A limit order trades certainty of execution for certainty of price. It is most useful in thinly traded stocks or ETFs with wide spreads, during volatile openings or news events when quotes move quickly, and whenever the investor has a maximum purchase price or minimum sale price in mind. The cost is the risk of missing the trade: if the market never reaches the limit, the order goes unfilled, and a limit set far from the current quote may sit all session. Partial fills are also possible when only some shares are available at the limit price. A limit order differs from a stop order, which Investor.gov defines as an order that becomes a market order once a specified stop price is reached and is generally used to limit a loss or protect a profit. Because a triggered stop fills at the market, its execution price can be well below the stop in a fast decline.
Hypothetical example: an investor enters a sell limit at $82 for 100 shares trading near $80. It fills at $82 or better for at least $8,200 if the stock reaches that level; a market order at a $79.90 bid would bring about $7,990. See volatility.
Example
Hypothetical: with a stock quoted $50.00 bid / $50.10 ask, a buy limit order at $49.80 fills only if the price falls to $49.80 or lower, capping the cost of 100 shares at $4,980; if the stock rises instead, the order never executes.
Limit Order — FAQ
What is Limit Order?
A limit order is an instruction to buy or sell a security at a specified price or better. It controls the execution price but does not guarantee the order will be filled.
Can you give an example of Limit Order?
Hypothetical: with a stock quoted $50.00 bid / $50.10 ask, a buy limit order at $49.80 fills only if the price falls to $49.80 or lower, capping the cost of 100 shares at $4,980; if the stock rises instead, the order never executes.
What is the difference between a limit order and a market order?
A market order buys or sells immediately at the best available price and, per Investor.gov, guarantees execution but not price. A limit order executes only at the limit price or better, so it guarantees the price if it fills but may not fill at all if the market never reaches that level.
Can a limit order be filled at a better price?
Yes. A buy limit order executes at the limit price or lower, and a sell limit order at the limit price or higher. If the market opens or gaps through your limit, the order can fill at a more favorable price than the one you set; it will never fill at a worse one.
What happens if my limit order is not filled?
It remains open until it fills, expires or you cancel it. A day order expires at the close of the trading session; a good-till-cancelled order stays active until you cancel it or the broker's time limit is reached. Partial fills can also occur if only some shares are available at your price.
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