Editorial Note: We earn a commission from partner links on Forbes Advisor. Commissions do not affect our editors' opinions or evaluations.
Getting the right price in the stock market can be a challenge. That’s because stock values fluctuate constantly, rising or falling from one second or one minute to the next. Using a limit order helps ensure you can buy or sell shares of stock at the price you want.
What Is a Limit Order?
When you place a limit order, you are telling a broker to buy or sell shares of stock when and only when the price is right.
A buy limit order tells your broker to purchase shares once a stock falls below a certain price—the so-called limit price. With a sell limit order, a broker only sells your shares once the stock rises above a set limit price.
You can choose a timeframe for your limit order, typically a period lasting as little as 24 hours or as long as a month. That means your limit order will execute a trade at the limit price only within a set period of time, after which it will expire.
Let’s say you want to buy Apple (AAPL) stock. If you place a limit order to buy 10 shares of Apple at $140, your broker will only buy the shares if the price of AAPL hits $140 or less.
There’s no guarantee that the stock you’re aiming to sell or buy will reach the limit price you choose, but a limit order prevents you from buying (or selling) at a price that’s higher (or lower) than you wish.
If the stock doesn’t reach the limit price you specify by the end of the designated timeframe, the limit order will not be executed.
Limit Order vs Market Order
Limit orders and market orders are the two most common order types. A market order instructs a broker to buy or sell shares of stock at the best available price. It’s typically the default order type on most brokerage platforms.
Market orders are executed immediately, but the price of the transaction isn’t guaranteed. When your market order goes through, the price may end up be higher or lower than it was when you placed it.
Let’s say you want to buy Disney (DIS), which is currently trading at $105 per share. Placing a market order for 10 shares of DIS means your broker would immediately buy the stock at the best possible price. If the price of Disney stock increases before the order is processed, you would end up paying more than $105 per share.
Unlike limit orders, market orders are guaranteed to execute. Market orders are processed during normal business hours. For the New York Stock Exchange and the Nasdaq, normal trading hours are 9:30 a.m. until 4:00 p.m ET Monday through Friday.
If you submit a market order before or after trading hours, breaking news or other variables could cause changes in the price before the order is executed.
When Should You Choose a Limit Order?
Market orders are your best option if you simply want to buy or sell shares of stock right now. It makes sense to choose a limit order under certain specific circ*mstances:
When you don’t want to watch the market. Placing a limit order can take the emotion out of trading. If you’re worried about buying or selling a stock at the wrong time, you can set your limit order and go about your day without having to worry about timing the market perfectly.
When you want to lock in a better price. Limit orders are the best choice when you have a specific price in mind to buy or sell a stock. For example, if you think Tesla (TSLA) stock is going to drop below $700 per share, you could place a limit order to buy shares at $699. In this case, your order would only go through if the stock reaches the $699 price point or lower. If it doesn’t, the order won’t be processed.
When you’re trading a high number of shares. Limit orders can be a good idea when you’re trading a large number of shares because they help you avoid slippage, or the difference between the price you expect to pay for a stock and the price you actually pay. When you place a market order, it’s difficult to predict how much slippage might occur. But with limit orders, you know exactly how much you’ll pay for the number of shares specified in your order.
When you want to trade low-volume stock. Limit orders can also be helpful when you’re trading stock that doesn’t trade frequently. For example, if you want to buy shares of a small company that doesn’t have a lot of volume, it may take some time to fill your order using a market order. In this case, limit orders can help you get the price you want without having to wait too long for your order to go through.
Placing Orders for Stocks
When you’re trading stocks, it’s important to understand that a limit order allows you to specify the maximum price you’re willing to pay or the minimum price at which you’re willing to sell. This can help protect you from paying too much for a stock or selling for less than you wanted.
Limit orders are usually filled faster than market orders, but there is no guarantee that your order will be filled at all.
If you need help managing your portfolio and deciding the best time to buy or sell securities, consider consulting with an investment professional like a Certified Financial Planner. Or, sign up with a robo-advisor to automate your investments.
A limit order is an order to buy or sell a stock with a restriction on the maximum price to be paid (with a buy limit) or the minimum price to be received (with a sell limit). If the order is filled, it will only be at the specified limit price
limit price
A limit price (or limit pricing) is a price, or pricing strategy, where products are sold by a supplier at a price low enough to make it unprofitable for other players to enter the market. It is used by monopolists to discourage entry into a market, and is illegal in many countries.
A limit order instructs your broker to execute your trade only at the price you specify or better. If you're selling, you will transact only if you can get your limit price or higher. If you're buying, your trade will execute only if you can get your limit price or less.
In a limit order, the investor has to specify a quantity and the desired price at which he or she wants to make the transaction. Say a share is currently trading at Rs 100 per share but the investor wants to buy it at Rs 95 per share. A limit order of say 10 shares at Rs 95 per share is placed.
You open a take profit limit order with the profit price set to 1,700 and the limit price set to 1,680. The last traded price hits 1,700, triggering your profit price. A limit order to sell ETH at 1,680 is placed in the market, which will fill at that price or better.
Even if trading activity touches the limit order price for a short time, an execution still might not occur if other orders ahead of yours use all or part of the shares available at the current price. In addition, market orders are always executed prior to limit orders.
The main disadvantage of a limit order is that there is no guarantee that the order will be filled. If the spot price does not reach the limit price, or if only a small number of shares are available, then the trader may lose out on a potential opportunity.
Market orders are best used for buying or selling large-cap stocks, futures, or ETFs. A limit order is preferable if buying or selling a thinly traded or highly volatile asset. The market order is the most common transaction type made in the stock markets.
A buy limit order can be executed only at or below the limit price; a sell limit order can be executed only at or above the limit price. This means you're guaranteed to get your limit price or a better price if your order is executed. However, there's a chance your order doesn't get executed at all.
Limit orders can be used in conjunction with stop orders to prevent large downside losses. A limit order is usually valid for either a specific number of days (i.e. 30 days), until the order is filled, or until the trader cancels the order.
Imagine that you own stock worth $75 per share and want to sell if the price gets to $80 per share. A limit order can be set at $80, which will be filled only at that price or better. Just remember that you cannot set a limit order to sell below the current market price because there are better prices available.
Limit orders are more complicated to execute than market orders so they can result in higher brokerage fees. But it may be difficult to find the actual price for low volume stocks that aren't listed on major exchanges, making limit orders an attractive option.
Benefits of a Buy Limit Order. A buy limit order ensures the buyer does not get a worse price than they expect. Buy limit orders provide investors and traders with a means of precisely entering a position. For example, a buy limit order could be placed at $2.40 when a stock is trading at $2.45.
A limit order is an order to buy or sell a stock with a restriction on the maximum price to be paid (with a buy limit) or the minimum price to be received (with a sell limit). If the order is filled, it will only be at the specified limit price or better. However, there is no assurance of execution.
Why Might a Limit Order Not Get Filled? A buy limit order won't get filled if the price of the underlying asset jumps above the order's stated price. This is because the limit price is the maximum amount the investor is willing to pay. In the case of a gap, that price would now be below the market price.
A limit order book is a record of outstanding limit orders maintained by the security specialist who works at the exchange. A limit order is a type of order to buy or sell a security at a specific price or better. When a limit order for a security is entered, it is kept on record by the security specialist.
Investors generally use limit orders when they have a target entry or exit price and are willing to wait for the market to move in their favor. Let's say, for example, that a stock is currently trading at $55, but an investor believes it'd be a good value at $50 or less.
Chase Limit Order is a limit order placed at the best bid or ask that dynamically adjusts its entry price to match changing market conditions until the order is filled, canceled, or reaches a maximum chase distance.
Summary. A stop-limit order is a trade tool that traders use to mitigate risks when buying and selling stocks. A stop-limit order is implemented when the price of stocks reaches a specified point. A stop-limit order does not guarantee that a trade will be executed if the stock does not reach the specified price.
A buy limit order only executes when the market price of the stock is at or below the order's limit price. So, generally speaking, if you place a buy limit order with a price that's above the market price, the order will execute (perhaps at a better price).
Introduction: My name is Corie Satterfield, I am a fancy, perfect, spotless, quaint, fantastic, funny, lucky person who loves writing and wants to share my knowledge and understanding with you.
We notice you're using an ad blocker
Without advertising income, we can't keep making this site awesome for you.
