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A limit order is a trading instruction to buy or sell a financial asset at a specific price or better. When placing a limit order, the investor sets the maximum price they are willing to pay when buying, or the minimum price they are willing to accept when selling.
A limit order gives price control but does not guarantee execution.
If the market reaches the specified price, the order may be executed. However, if the price never reaches that level, the order remains unfilled. This makes limit orders useful for investors who want to avoid paying more than a certain price or selling below a desired level. Unlike market orders, which are executed immediately at the best available price, limit orders prioritize price certainty over speed. In fast moving or low liquidity markets, limit orders may only be partially filled if there are not enough shares available at the specified price.
Short example:
Suppose a stock is currently trading at $50.
An investor believes the stock is attractive at $45 and places a limit buy order at that price.
If the market declines and the price falls to $45, the order can be executed at $45 or lower. If the stock only drops to $47 and then rises again, the order remains unfilled. This allows the investor to stick to a predefined entry level instead of buying at a higher price during market fluctuations.
Disclaimer: Investing brings risks. Our analysts are not financial advisors. Always consult an advisor when making financial decisions. The information and tips provided on this website are based on our analysts' own insights and experiences. Therefore, they are for educational purposes only.
