What Is a Limit Order?

A limit order instructs the trading system to execute at a specified price or a more favourable price.

Limit orders allow traders to define the price conditions under which they are willing to enter or exit the market.

Buy limit

A buy limit is generally placed below the current market price.

Suppose gold is trading at:

$3,000

You believe $2,970 would be a better entry price.

You place a:

Buy Limit at $2,970

The order waits.

If the market falls to the specified level and the necessary execution conditions are available, the order may be filled.

Sell limit

A sell limit is generally placed above the current market price.

Suppose an instrument is trading at:

100

You want to sell if the market reaches:

105

A sell limit can be placed at 105.

Why use limit orders?

Limit orders can help traders avoid entering at prices they consider unattractive.

They can also allow traders to prepare orders in advance rather than continuously monitoring the market.

Does touching the price guarantee execution?

Not necessarily.

An order may need sufficient liquidity to be available at the specified price.

During fast-moving markets, an instrument could briefly reach a price without enough available volume to completely fill every order waiting at that level.

Better price execution

A limit order defines the worst acceptable price for that order.

Depending on market conditions and the execution model, the order may execute at the limit price or a more favourable available price.

Lesson summary

• A limit order specifies an acceptable execution price.

• Buy limits are generally placed below the current market.

• Sell limits are generally placed above the current market.

• Limit orders can help traders control entry or exit prices.

• Reaching a price does not necessarily guarantee a complete fill.