Limit Price
What Is a Limit Price?
A limit price is the specific price an investor sets when placing a limit order to buy or sell a security. The trade will only execute if the market reaches the specified price or better.
Limit prices give investors more control over the execution of their trades.
Why It Matters
Using a limit price helps investors avoid paying more than they intended when buying or selling securities. It can protect against unfavorable price movements during volatile market conditions.
Limit orders are commonly used by investors who want precise control over their trade execution.
How a Limit Price Works
When placing a limit order, an investor sets a maximum purchase price or minimum selling price.
For example:
- buy limit order → execute only at or below the limit price
- sell limit order → execute only at or above the limit price
The order may remain open until the price is reached or the order expires.
Example
An investor wants to buy a stock trading at $52 but sets a limit price of $50. The order will only execute if the stock price drops to $50 or lower.
Limit Price vs Market Price
- Limit price sets a specific price for the trade.
- Market price executes the trade immediately at the best available price.
FAQs About Limit Prices
Are limit orders guaranteed to execute?
No. If the market never reaches the limit price, the order may remain unfilled.
Do limit orders expire?
Yes. Some expire at the end of the trading day unless marked as good-til-canceled.
Why do traders use limit orders?
They help control trade prices and reduce slippage.
Related Terms
