Limit Orders
What Is a Limit Order?
A limit order is an instruction to buy or sell a security at a specific price or better. Investors use limit orders to control the price at which their trade is executed.
Unlike market orders, limit orders may not execute immediately.
Why It Matters
Limit orders give investors greater control over trade pricing. This is especially useful in volatile markets or when trading securities with wider bid-ask spreads.
Investors can avoid paying more than they are willing to spend or selling for less than their target price.
How a Limit Order Works
When placing a limit order, the investor specifies the maximum price they are willing to pay when buying or the minimum price they are willing to accept when selling.
The order executes only if the market reaches that price.
If the market never reaches the specified price, the order may remain unfilled.
Example
An investor wants to buy shares currently trading at $50 but places a limit order at $48. The trade will execute only if the price falls to $48 or lower.
Limit Order vs Market Order
- A limit order guarantees the price but not execution.
- A market order guarantees execution but not price.
FAQs About Limit Orders
Can a limit order expire?
Yes. Some orders expire at the end of the trading day.
What is a good-till-canceled limit order?
It remains active until filled or canceled.
Are limit orders useful in volatile markets?
Yes. They help control trade prices during price swings.
Related Terms
