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Textbook
Introduction
1. Common stock
2. Preferred stock
3. Debt securities
4. Corporate debt
5. Municipal debt
6. US government debt
7. Investment companies
8. Alternative pooled investments
9. Options
10. Taxes
11. The primary market
12. The secondary market
12.1 Agency vs. principal capacity
12.2 Roles
12.3 Bid & ask
12.4 The markets
12.5 The Securities Exchange Act of 1934
12.6 Customer orders
12.6.1 Market orders
12.6.2 Limit orders
12.6.3 Stop orders
12.6.4 Stop limit orders
12.6.5 Summary of the order types
12.6.6 Additional order specifications
12.6.7 Customer order rules
13. Brokerage accounts
14. Retirement & education plans
15. Rules & ethics
Wrapping up
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12.6.2 Limit orders
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12. The secondary market
12.6. Customer orders

Limit orders

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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?

(spoiler)

Answer = $74.97

Buy limit orders fill at the limit price or lower. $74.97 is the first price available that’s $75 or lower.

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?

(spoiler)

Answer = $30.05

Sell limit orders fill at the limit price or higher. $30.05 is the first price available that’s $30 or higher.

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, when an order is placed, customers must also specify how long it stays in effect. This time condition isn’t unique to limit orders - it applies to all four order types covered in this unit: market, limit, stop, and stop limit orders.

  • Day orders cancel at the end of the trading day if they haven’t executed, whether the order is a market, limit, stop, or stop limit order.
  • GTC orders remain in effect until the customer cancels them, whether the order is a market, limit, stop, or stop limit order.

Limit orders overview

  • Guarantee price (or better), not execution
  • Contrast with market orders, which guarantee execution, not price

Buy limit orders

  • Executes at limit price or lower
  • Fills at first available price on tape at/below limit
  • Used to try to buy stock cheaper than current market price

Sell limit orders

  • Executes at limit price or higher
  • Fills at first available price on tape at/above limit
  • If price is stated with no other qualifier, assume it’s a limit order

Timeframe (applies to all order types: market, limit, stop, stop limit)

  • Day orders: cancel automatically at end of trading day if unexecuted
  • GTC (Good-Til-Cancelled) orders: remain active until customer cancels

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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?

(spoiler)

Answer = $74.97

Buy limit orders fill at the limit price or lower. $74.97 is the first price available that’s $75 or lower.

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?

(spoiler)

Answer = $30.05

Sell limit orders fill at the limit price or higher. $30.05 is the first price available that’s $30 or higher.

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, when an order is placed, customers must also specify how long it stays in effect. This time condition isn’t unique to limit orders - it applies to all four order types covered in this unit: market, limit, stop, and stop limit orders.

  • Day orders cancel at the end of the trading day if they haven’t executed, whether the order is a market, limit, stop, or stop limit order.
  • GTC orders remain in effect until the customer cancels them, whether the order is a market, limit, stop, or stop limit order.
Key points

Limit orders overview

  • Guarantee price (or better), not execution
  • Contrast with market orders, which guarantee execution, not price

Buy limit orders

  • Executes at limit price or lower
  • Fills at first available price on tape at/below limit
  • Used to try to buy stock cheaper than current market price

Sell limit orders

  • Executes at limit price or higher
  • Fills at first available price on tape at/above limit
  • If price is stated with no other qualifier, assume it’s a limit order

Timeframe (applies to all order types: market, limit, stop, stop limit)

  • Day orders: cancel automatically at end of trading day if unexecuted
  • GTC (Good-Til-Cancelled) orders: remain active until customer cancels

More from Customer orders

  • Market orders
  • Stop orders
  • Stop limit orders
  • Summary of the order types
  • Additional order specifications