Securities
Limit Order
A limit order is an instruction to buy or sell a security at a specified price or better, guaranteeing the price but not guaranteeing execution.
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Exam Tip
Limit = price guaranteed, execution not guaranteed. Buy limit below market; sell limit above market.
What is a Limit Order?
A limit order specifies the maximum price you're willing to pay (buy) or the minimum price you're willing to accept (sell). The order only executes at your limit price or better.
How Limit Orders Work
| Order Type | Execution |
|---|---|
| Buy Limit | Executes at limit price or LOWER |
| Sell Limit | Executes at limit price or HIGHER |
Example
Buy Limit Order:
- Stock currently trading at $52
- You place buy limit at $50
- Order executes only if price drops to $50 or below
Sell Limit Order:
- Stock currently trading at $48
- You place sell limit at $50
- Order executes only if price rises to $50 or above
Limit Order vs. Market Order
| Factor | Limit Order | Market Order |
|---|---|---|
| Price | Guaranteed | Not guaranteed |
| Execution | Not guaranteed | Guaranteed |
| Speed | May take time or never fill | Immediate |
| Best for | Price-sensitive trades | Speed-sensitive trades |
Order Duration
| Type | Duration |
|---|---|
| Day Order | Expires at market close |
| GTC (Good Till Canceled) | Remains until filled or canceled |
| IOC (Immediate or Cancel) | Fill immediately or cancel |
| FOK (Fill or Kill) | Fill entirely immediately or cancel |
When to Use Limit Orders
- Illiquid securities with wide bid-ask spreads
- Volatile markets
- When you have a specific target price
- After-hours trading