Limit Order

A limit order is an instruction to buy or sell a security at a specified price or better. Unlike market orders that execute immediately at whatever price is available, limit orders only execute when the market reaches your specified price. This gives investors control over their execution price but doesn't guarantee the order will be filled. For a buy limit order, you specify the maximum price you're willing to pay. The order will only execute at that price or lower. For a sell limit order, you specify the minimum price you'll accept. The order will only execute at that price or higher. If the market never reaches your limit price, the order remains unfilled. Limit orders offer several advantages. They protect against paying more (when buying) or receiving less (when selling) than intended. They're particularly useful in volatile markets where prices can move quickly, or for illiquid stocks with wide bid-ask spreads. They also allow investors to set target prices and step away without constantly monitoring the market. However, limit orders have drawbacks. There's no guarantee of execution - if the stock never reaches your price, you'll miss the trade entirely. This can be frustrating if the stock moves away from your limit and never returns. For time-sensitive trades, the risk of non-execution may outweigh the benefits of price control. Understanding when to use limit versus market orders is important. For liquid stocks with tight spreads, market orders are often fine for smaller trades. For larger orders, less liquid stocks, or volatile conditions, limit orders help manage execution risk. Setting limit prices requires balancing the desire for a better price against the risk of missing the trade entirely. Most brokers default to market orders, so investors must actively choose limit orders when appropriate. Learning to use limit orders effectively is a basic but important skill for all investors.