Limit Order

Order to buy or sell at a specified price or better.

A limit order is an instruction to a broker to buy or sell a security at a specific price or better. For a buy limit order, the trade will only execute at the specified limit price or a lower price. For a sell limit order, the trade will only execute at the limit price or a higher price. This gives investors precise control over the execution price of their trades, unlike a market order, which executes immediately at the best available current price. Investors use limit orders to protect themselves from sudden price swings and to avoid paying more (or receiving less) than they intended. This is particularly important when trading highly volatile stocks or assets with low liquidity, where the bid-ask spread can be wide and market prices can change rapidly in milliseconds. While limit orders guarantee the price at which a trade will execute, they do not guarantee that the trade will execute at all. If the market price never reaches the specified limit price, the order will remain unfilled. Investors must also choose an expiration for the order, such as "Good 'Til Canceled" (GTC) or "Day Only," which determines how long the order remains active before being automatically canceled.

An investor wants to buy shares of Company A, which is currently trading at $52 per share. Believing the price will dip slightly, the investor places a buy limit order at $50. If the stock price drops to $50 or below, the order is triggered and filled at $50 (or less). If the stock price only drops to $50.50 and then rallies to $60, the order remains unfilled and the investor misses the opportunity.