Takeaways
- A Limit order is a trading order used to buy or sell a security at a specific price.
- Investors use limit orders to control the price at which they buy or sell a security.
- Limit orders can be used for stock, bonds, ETFs, cryptocurrencies, and options.
- Limit orders help investors optimize their trades for specific prices or quantities.
- Limit orders are used less frequently than market orders, which buy or sell a security at the current market price.
What Is a Limit Order?
When buying or selling a stock, both the timing and pricing of the transaction can make a big difference. One tool investors use to gain more control over their trades is a limit order. This type of order allows you to set a specific price at which you are willing to buy or sell a stock, helping you avoid unpleasant surprises in a volatile market.
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How Limit Orders Work
Limit orders set a specific price for buying or selling a security and are widely used. According to a sample taken by Microstructure Exchange, limit orders account for just over 25% of retail market orders.[1]
With a limit order, rather than accepting the current market price, you decide the highest price you are willing to pay (for a buy order) or the lowest price you will accept (for a sell order). Limit orders can often be placed to purchase or sell stocks, bonds, ETFs, or cryptocurrencies.
Once submitted, the order stays open until it is either executed at your set price or canceled. If the market never reaches your target price, the order does not go through. You can place a limit order to expire at the end of the trading day, upon cancellation, or on a specific date.
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Example of a Limit Order
Let’s take a look at an example. Imagine you want to buy your first stock in a company that is currently trading at $50. After doing your market research, you believe it is a good value at $48. You could place a buy limit order at $48, good for that trading day. If the stock price falls to that level, your order will be filled automatically. If it does not, no shares are purchased.
The same works in reverse when selling. If a stock is trading at $52, and you want to sell only if it hits $55, you would place a sell limit order at $55.
By using a limit order, you get the price you want, but there is no guarantee your order will be filled. One of the main attractions of a limit order is your ability to control the pricing and timing. But this control comes at the expense of potentially not having the order executed.
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Pros of a Limit Order
- Price Control – Limit orders allow you to set the exact price at which you are comfortable trading. Being able to control pricing can prevent overpaying or underselling, especially in fast-moving markets.
- No Need to Watch the Market Constantly – Once a limit order is placed, you can walk away and enjoy your day knowing that the trade will only execute if the exact order conditions are met.
- Helpful in Volatile Markets – When prices are fluctuating rapidly, market orders can get filled at unfavorable rates. A limit order protects you from that unpredictability.
- Better for Illiquid Stocks – For stocks with low trading volume, spreads between bid and ask prices can be wide. A limit order helps you avoid paying a premium.
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Cons of a Limit Order
- No Guarantee of Execution – If the stock never hits your target price, your order may never be filled. This can be frustrating if the price barely misses your limit.
- Potential for Missed Opportunities – You might miss out on buying a stock that continues to rise, or selling one before it falls, because your price condition was not met.
- Partial Fills Are Possible – Only part of your order may be executed if there are not enough shares available at your limit price.
Why Limit Orders Do Not Get Filled
According to an MIT study, only 37 percent of limit orders are fully filled.[2] Several factors may prevent your limit order from being executed. Here are a couple to consider:
- The market price never reaches your limit price.
- There are other orders ahead of yours at the same price (orders are often filled on a first-come, first-served basis).
- There is insufficient volume at your price level to fill the entire order.
Limit Order vs. Stop-Limit Order
While similar in name, these two order types serve different purposes.
- A limit order is active the moment you place it.
- A stop-limit order only becomes active when the stock reaches a certain “stop” price. Once triggered, it then becomes a limit order.
Stop-limit orders are often used to protect profits or minimize losses. For example, you might set a stop-limit order to sell a stock if it falls to $45, but only if it can be sold for at least $44.50. This gives you more precision in how you exit an investment position.
Limit Order vs. Market Order
A market order is the most basic type of order. It simply tells your broker to buy or sell a stock immediately at the best available price.
Market orders are immediate, but they offer no control over the price you will get. A limit order gives you control over the price, but not necessarily the timing.
Smart Summary
A limit order gives you the power to set your own price when buying or selling a stock. It is an innovative trading tool for anyone who wants to avoid the unpredictability of market orders. While it comes with the risk of not getting your order filled, the control it offers can make it a valuable part of your investing strategy. If getting the best possible price is more important than completing the trade immediately, a limit order could be a helpful tool.
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(1) Microstructure Exchange. Retail Limit Orders. December 28, 2025.
(2) Journal of Financial Economics. Econometric models of limit-order executions. December 28, 2025.
