LIMIT ORDER

Summary

A limit order is a type of trading instruction that gives you control over the price at which you buy or sell a security. Unlike a market order that executes immediately at the current market price, a limit order will only execute if the market reaches your specified price or better. For a buy limit order, 'better' means at or below your specified price. For a sell limit order, 'better' means at or above your specified price. This tool helps investors avoid paying more than they want or selling for less than they're willing to accept, but comes with the risk that the order may never execute if the market doesn't reach the specified price.

Usage Context

Essential for understanding order execution strategies, risk management in trading, and how investors can control transaction costs while managing the trade-off between price certainty and execution certainty.

Common Confusions

• Thinking a limit order guarantees execution - it only guarantees price if executed
• Confusing buy limit orders (set below current price) with sell limit orders (set above current price)
• Not understanding that limit orders may result in partial fills
• Assuming limit orders always get better prices than market orders