How Markets Work · Beginner · 5 min

Limit order

You can place a buy or sell limit at a sensible price, explain why it may never be filled, and choose how long it stays active.

My price, or no trade

A market order asks the market for its price right now. A limit order turns the question around. It tells the market the price you are willing to trade at, and not a cent worse.

That one change makes the limit order the most useful tool for controlling costs. It also creates a new problem that catches many beginners: an order that waits at a price the market never reaches.

Setting the worst price

A limit order is an order to buy or sell at a specific price or better.

A buy limit is filled only at the limit price or lower. You place it at or below the current price.
A sell limit is filled only at the limit price or higher. You place it at or above the current price.

If the limit is at or beyond the current best price, the order is filled right away, like a market order, but never worse than the limit. If it is away from the market, it waits in the order book until the price comes to it.

The benefit is price control. The SEC notes that limit orders help make sure you do not pay more than a price you set in advance. The cost is certainty: a limit order is not certain to be filled. The price may never reach your limit, or it may touch it only briefly while other orders at the same price are ahead of yours in the queue.

Every order also has a time in force, how long it stays active. The SEC describes the usual choices:

Day: the default at most brokers. The order is cancelled at the end of the trading day if not filled.
Good-til-canceled (GTC): the order stays until it is filled or you cancel it, up to a limit your broker sets.

Some brokers also offer orders that are valid until a date you choose.

Two cents from a fill

A fictional stock trades at 10.40. You want to buy, but only at 10.00 or lower, so you place a buy limit at 10.00, good-til-canceled.

Over two days the price falls to 10.02.
Then buyers step in. The price rises to 10.50 and, a day later, to 11.10.

Your order was never filled. You saved two cents per share on paper and missed a move of more than 10%. That is not a mistake in itself. It is the trade-off you accepted when you chose control over certainty. The lesson is to set limits at prices you have a reason for, not at round numbers out of habit.

Common mistakes

Setting a buy limit above the market by accident. It fills right away, at the best available price up to your limit.
Forgetting open orders. A GTC order can be filled weeks later, when you no longer want the trade.
Chasing the price. Moving your limit up again and again turns it into an expensive market order.
Expecting a fill when the price touches your limit. Orders placed earlier at the same price come first.
Not knowing the default. Check whether your broker treats an order without an expiry as a day order.

The takeaway

A limit order sets the worst price you accept. You control the price and give up the certainty that the order is filled.

Check yourself

Quick quiz

4 questions. Instant feedback, nothing is saved.

1Tap the order that could be filled if the price falls.

Tap the chart.

A limit buy waits below the price. It can be filled when the price falls to 48.00 or lower.
2You place a limit buy at 10.00. Which fill is possible?

A buy limit is filled at the limit price or lower. 9.98 is better than 10.00, so it is allowed.
3What is the main risk of a limit order?

The SEC notes that a limit order is not certain to execute. The price may never reach the limit, or other orders may come first.
4You set no expiry on your order. What does that usually mean at most brokers?

According to the SEC, orders without a time frame are generally day orders. Good-til-canceled orders stay active longer, with limits set by the broker.

of 4 correct.