What is a Limit Order?
A limit order is an instruction to buy or sell a security only at a specified price or better, giving the investor price control but no guarantee that the order will be filled.
A limit order is a type of stock order that instructs your brokerage to buy or sell a security only at a specified price — or at a better one. Unlike a market order, which executes immediately at whatever the current market price is, a limit order gives you control over the price you pay or receive.
- Buy limit order — Executes only at the limit price or lower. You're willing to buy, but not for more than this price.
- Sell limit order — Executes only at the limit price or higher. You're willing to sell, but not for less than this price.
If the market price never reaches your limit, the order simply remains open (or expires, depending on the time-in-force settings you chose) without executing.
How Limit Orders Work
Example — Buy Limit: A stock is currently trading at $55. You want to buy it, but only if it dips to $50. You place a buy limit order at $50. If the stock falls to $50 or below, your order fills. If it never reaches $50, you don't buy it.
Example — Sell Limit: You own a stock currently at $80. You want to take profits at $90. You place a sell limit order at $90. If the stock rises to $90 or above, your order fills at $90 or better.
Limit Order Time-in-Force Options
When placing a limit order, you typically specify how long it should remain active:
| Setting | Duration |
|---|---|
| Day | Expires at end of the trading day if not filled |
| Good 'til Canceled (GTC) | Remains active until filled or you cancel it (often 60–90 days max) |
| Fill or Kill (FOK) | Must fill entirely immediately or cancel |
| Immediate or Cancel (IOC) | Fill as much as possible immediately, cancel the rest |
Limit Orders vs. Market Orders
| Limit Order | Market Order | |
|---|---|---|
| Price control | Yes — only fills at your price or better | No — fills at current market price |
| Execution certainty | Not guaranteed | Nearly guaranteed (for liquid stocks) |
| Risk of slippage | Eliminated | Present in fast-moving or thinly traded markets |
| Best for | Price-sensitive investors; volatile or thinly traded stocks | Speed; liquid stocks where price difference is minimal |
When to Use a Limit Order
Limit orders are useful when:
- You're buying volatile stocks — The price can swing significantly before your order processes, and you want to control what you pay
- You're trading thinly traded securities — Low-volume stocks have wide bid-ask spreads, and a market order can execute at a significantly worse price
- You're a day trader — Precise entry and exit prices are critical
- You want to set a target buy price — Rather than monitoring the market constantly, you set your desired price and let the market come to you
For routine purchases of liquid ETFs or large-cap stocks, the difference between a limit order and a market order is usually just a few cents, making either approach reasonable.