What is Limit Order?
Definition
A limit order is an instruction to buy or sell a security at a specified price or better. Buy limit orders execute at or below the limit price; sell limit orders execute at or above it. It guarantees price but not execution.
Detailed Explanation
Limit orders give investors control over the price they pay or receive. A buy limit order at $50 will only execute if the stock is available at $50 or lower. A sell limit order at $50 will only execute at $50 or higher. If the limit price is never reached, the order goes unfilled.
Limit orders are particularly valuable for illiquid stocks, volatile markets, or when placing large orders that could move the price. They prevent the slippage risk inherent in market orders.
Good-till-canceled (GTC) limit orders remain open until executed or manually canceled, which can be days, weeks, or months. Day orders expire at the end of the trading day if not filled. Some brokers also offer fill-or-kill (execute immediately in full or cancel) and immediate-or-cancel (fill what you can immediately, cancel the rest) variations.
Professional traders almost exclusively use limit orders to maintain price discipline. Value investors use limit orders to buy at predetermined prices, patiently waiting for the market to come to them.
Frequently Asked Questions
What if my limit order is not filled?
Can a limit order get a better price than specified?
Should I always use limit orders?
Related Terms
Bid-Ask Spread
The bid-ask spread is the difference between the highest price a buyer is willing to pay (bid) and the lowest price a seller is willing to accept (ask) for a security. It represents a transaction cost for traders and is a key indicator of market liquidity.
Stop Loss
A stop loss is an order placed with a broker to sell a security when it reaches a specified price, designed to limit an investor's loss on a position. It automates risk management by ensuring positions are closed before losses become excessive.
Market Order
A market order is an instruction to buy or sell a security immediately at the best available current price. It guarantees execution but not the exact price, making it the fastest but least price-controlled order type.
Market Depth
Market depth shows the quantity of buy and sell orders at various price levels for a security. It reveals the supply and demand landscape beyond just the best bid and ask, indicating how much a large order would move the price.
See It in Action
Disclaimer: The information on this page is provided for educational and informational purposes only and does not constitute investment advice. AI-generated analysis may contain errors or inaccuracies. Always conduct your own research and consult a qualified financial advisor before making investment decisions.
See Limit Order in Action
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