A limit order sets the worst price you are willing to accept. A buy limit sits below (or at) the current price and only fills at that price or lower; a sell limit sits above (or at) it and only fills at that price or higher. It removes slippage on entry but adds a new risk: the order may never fill.
How it works
A limit order that cannot fill immediately rests in the order book until price comes to it, you cancel it, or its time-in-force expires. Resting orders add liquidity, so exchanges often charge them the lower “maker” fee. Traders use limit orders to:
- Buy pullbacks into support instead of chasing price.
- Sell into strength near resistance.
- Set a take-profit, which is usually a sell limit (or buy limit for shorts) at the target.
- Avoid paying the spread in less liquid markets.
The trade-off is clear: you control price, but in a fast move the market may run away without you.
Example
A stock trades at $72.40. Support sits around $70. A trader places a buy limit for 100 shares at $70.20, good-till-cancelled. Three days later price dips to $70.05 and the order fills at $70.20 or better. Compared with buying at market on the first day, the trader saved $2.20 per share, $220 in total.
Another week, the same stock bounces at $70.60 without reaching $70.20 and rallies to $78. The order never fills, and the trader misses the move. That missed trade is the cost of price control.
Common mistakes
- Placing limits at the exact obvious number. Many orders cluster at $70.00; a slightly higher limit can improve fill odds.
- Forgetting open orders. A stale good-till-cancelled order can fill weeks later in a different market context.
- Chasing with limits. Moving the limit up repeatedly turns it into a slow market order.
- Confusing limit and stop orders. A buy stop triggers above price; a buy limit fills below it.
Educational content — not financial advice.
Updated