Limit orders

Limit orders are used by customers who care about the price they’ll pay or receive. Unlike market orders, limit orders guarantee the transaction will occur at a specific price or better. However, they don’t guarantee execution. Let’s walk through a few examples.

Buy limit orders

Buy 100 shares of ABC stock @ $50 limit

Trading tape: $51.03… $51.01… $49.99… $49.98… $50.01…

The investor wants to buy 100 shares of ABC stock but won’t pay more than $50 per share. A buy limit order executes only when the stock trades at $50 or lower.

The trading tape shows available prices for the security from left to right. Here, $49.99 is the first price at $50 or below, so the order fills at $49.99.

Investors use buy limit orders to try to get a better price. For example, if the stock is currently $55, a customer could place a buy limit at $50. If the order executes, they buy the stock for $5 less per share. The trade will only happen, though, if the price falls to $50 or below.

Let’s see if you can answer a buy limit order question.

Buy 100 shares @ $75 limit

Trading tape: $75.02… $75.03… $74.97… $75.00… $75.01…

At what price does the order go through?

Here’s a video that dives further into buy limit orders:

Sell limit orders

Let’s look at a limit order from the sell side:

Sell 100 shares of XYZ stock @ $70

Trading tape: $69.95… $69.98… $69.99… $70.01… $69.99…

At what price does the order go through?

Even though the word “limit” isn’t shown, it’s assumed to be a limit order if a price is specified and nothing else is stated.

This is a sell limit order, where the customer wants to sell 100 shares of XYZ stock at $70 or higher. A sell limit order executes only when the stock trades at the limit price or above.

In the trading tape, $70.01 is the first price at $70 or above, so the order fills at $70.01.

Let’s see if you can answer a sell limit order question.

Sell 100 shares @ $30

Trading tape: $30.05… $30.02… $29.99… $29.97… $30.01…

At what price does the order go through?

Here’s a video that dives further into sell limit orders:

Timeframe

Limit orders may take time to execute because the market has to reach the specified price. Because of that, limit orders are often entered with a time condition:

• Day orders cancel at the end of the trading day if they haven’t executed.
• GTC orders remain in effect until the customer cancels them.