Limit Orders

A limit order is an instruction to buy or sell only at a price you choose, or better. A buy limit sets the most you will pay. A sell limit sets the least you will accept. In exchange for that control, you give up certainty: if the market never reaches your price, your order simply waits and may never fill.

How a limit order works#

• A buy limit at $49.50 fills at $49.50 or lower. It never pays more.
• A sell limit at $52.00 fills at $52.00 or higher. It never accepts less.

When you place a limit order away from the current price, it joins the order book and waits. You become a maker: your order adds liquidity that other traders can trade against. When a seller arrives willing to sell at $49.50, your buy fills.

If your limit is already better than the market#

If you place a buy limit above the current ask, the market is already offering a better price than your limit, so the order fills immediately at the ask (or better) up to your limit. This is called a marketable limit order. It is the safest way to trade immediately, because it acts like a market order but refuses to fill beyond the price you set.

Why limit orders do not always fill#

A limit order can fail to fill even when the price touches your level:

1. The price never reaches it. The most common case. The stock you wanted at $49.50 bottoms at $49.52 and runs to $55.
2. The queue. Orders at the same price are usually filled in the order they arrived, first in first out. If 5,000 shares were waiting at $49.50 before yours and only 2,000 trade there, your order does not fill. See Fill Probability and Queue Position.
3. Partial fills. You might get 120 of your 500 shares before the price moves away.
4. Time in force ran out. A day order is cancelled at the close. See Time in Force: Day, GTC and GTD Orders.

Choosing your limit price#

Where you place the limit depends on what you want from the trade:

For selling, mirror the table: at or below the bid to exit now, at the ask to save the spread, at resistance above to take profit.

Limit orders for exits#

Limit orders are not only for entries. A sell limit above the market is the standard way to take profit at a target. Placed together with a stop loss, they form a bracket that defines the whole trade in advance. Profit targets work best as limit orders, because you never need to chase a price you are happy to receive.

A limit order is not a good stop loss, though. A sell limit below the current price would fill immediately. Protection against a fall needs a stop order or a stop-limit order.

Hidden costs and benefits#

• Maker rebates. Many exchanges pay a small rebate to orders that add liquidity and charge a fee to orders that take it. Your broker may or may not pass this on.
• Adverse selection. Your limit order tends to fill most often when the market is moving through your price, which is exactly when the price may keep going against you. A buy limit that fills during a sharp drop often keeps losing for a while.
• No slippage. By definition, a limit order cannot fill worse than your price, which removes the risk of Slippage.

Common mistakes#

• Setting limits too far away and then chasing the price with a market order after missing it.
• Leaving GTC orders forgotten in the book for weeks.
• Placing limits at round numbers like $50.00, where large queues form. A price of $50.03 can fill when $50.00 does not.
• Using limit orders where speed matters most, such as exiting a trade that has clearly failed.

Key takeaways#

• A limit order guarantees your price or better, not a fill.
• Marketable limits give you speed with protection; resting limits save the spread or buy pullbacks.
• Queue position and partial fills decide whether you trade at your price.
• Use limits for entries and targets, and stops for protection.

Compare both order types side by side in Market vs Limit Orders, or see how limits combine with triggers in Stop-Limit Orders.

Frequently asked questions#

Why did my limit order not fill when the price touched it?#

Orders at the same price are usually filled in the order they arrived. If many shares were already waiting at your price and only some traded there before the price moved away, your order stayed unfilled.

How long does a limit order last?#

It depends on the time in force you choose. A day order expires at the end of the session. A good till cancelled order stays until it fills or you cancel it, subject to your broker's maximum.

Is a limit order better than a market order?#

Neither is better in every case. A limit order controls your price but may not fill. A market order fills but does not control the price. Limits suit entries and targets; market orders suit urgent exits in liquid markets.

Sources#

• U.S. Securities and Exchange Commission, Limit order
• Wikipedia, Limit order