Limit Order

A limit order is an instruction to buy or sell a security at a specified price or better. A buy limit executes only at the limit price or lower; a sell limit executes only at the limit price or higher. Unlike a market order (which fills at the prevailing price), a limit order gives control over execution price but does not guarantee the trade will occur.

Key takeaways

• Guarantees price (or better) if filled, but not that the order will be filled.
• Useful for controlling execution during volatile markets or when not actively monitoring prices.
• Can be combined with stop orders for risk management.
• Duration depends on broker options (day, multi-day, or good‑til‑canceled).

How limit orders work

1. You specify: security, buy or sell, quantity, and limit price.
2. The order sits on the order book until market price reaches the limit (or better).
3. If matching liquidity exists at that price, the order (or a partial fill) executes; otherwise it remains unfilled until expiration or cancellation.

Example:
– Stock XYZ trades at $17.00. You place a buy limit at $14.50 — shares will only be purchased if the price falls to $14.50 or lower.
– You own shares of AMZN at $2,300 and set a sell limit at $2,750 — shares will only be sold if the price rises to $2,750 or above.

Limit order vs. market order

• Market order: prioritizes speed — fills at current market price, which can produce unfavorable prices during volatility.
• Limit order: prioritizes price — fills only at the specified price or better, which may delay or prevent execution.
• Choose market orders for immediate execution and limit orders when price certainty matters.

Stop‑limit vs. limit order

• Limit order: execute at the specified price or better whenever the market reaches that price.
• Stop‑limit order: requires a stop (trigger) price to be hit before becoming a limit order. This adds a trigger condition and can be used to limit losses or automate exits after a price move.

How long do limit orders last?

Common options:
* Day orders — cancel if not filled by market close.
* Multi‑day orders — valid for a set number of days (e.g., 30, 60).
* Good‑til‑canceled (GTC) — remain open until executed or canceled (subject to broker limits).

Why a limit order may not get filled

• Market never reaches your limit price.
• Insufficient liquidity at the limit price (partial fills possible).
• Large orders on low‑volume securities can remain unfilled.
• Exchange or broker restrictions or odd order parameters.

Practical tips

• Use limit orders to avoid poor fills during volatile sessions.
• For large orders, consider working the order in smaller blocks to improve chances of full fills.
• Check your broker’s default duration and fee structure for limit orders.
• Combine limit and stop‑loss strategies to balance price control and risk management.

Bottom line

Limit orders let traders control the price they pay or receive, helping manage execution quality and automate trades. They are not a substitute for assessing liquidity, order size, or timing—each affects whether and how much of your order will fill.