Limit Orders Explainer
A limit order sets a price boundary. A buy limit order can execute only at the limit price or lower, while a sell limit order can execute only at the limit price or higher. That protection distinguishes it from a market order, which prioritizes immediate execution.
Price protection creates execution risk. The market may never reach the limit, or other orders can be ahead in the queue when it does. A brief quote at the limit does not guarantee a fill if available size is exhausted before the order reaches priority.
A marketable limit is priced aggressively enough to trade against current quotes while still capping the worst acceptable price. Investors can also choose a time in force, such as day or good-till-canceled, and may receive partial fills across venues or times.
Limit orders can help manage slippage in volatile or thin markets, but a stale limit can also miss a fast-moving opportunity. The appropriate price should reflect spread, depth, urgency, and order size rather than a round-number target detached from current conditions.
Buy limits set a maximum; sell limits set a minimum.
Execution can occur at a better price.
The market may not reach the limit or the queue may be ahead.
A displayed touch does not promise a fill.
Duration, displayed status, routing, and arrival affect execution.
Partial fills are possible.
Explore more "Explainers"
Discover additional explainers across politics, science, business, technology, and other fields. Each explainer breaks down a complex idea into clear, everyday language—helping you better understand how major concepts, systems, and debates shape the world around us.