Limit order

A limit order is an instruction to buy or sell a security at a specified price or better. A buy limit executes only at the limit price or lower, and a sell limit only at the limit price or higher.

How it works

If the limit price is marketable (a buy limit at or above the current ask, for example), the order fills immediately up to that price. Otherwise it rests in the order book, visible on Level 2, until the market reaches it, it expires, or you cancel it.

Common settings:

• Time in force. Day orders expire at the session's close. Good-'til-canceled (GTC) orders persist, often for weeks or months depending on the broker.
• Extended hours. Most brokers require limit orders in pre-market and after-hours sessions.
• Partial fills. A resting order can fill in pieces as shares trade at your price.

Exchanges generally give priority by price, then by time, so an order at the same price as many others waits in line.

Why it matters for traders

Limit orders protect against bad fills in fast or thin markets, and they let traders capture part of the bid-ask spread by buying at the bid instead of the ask. They are essential around news, at the open and in small caps.

The tradeoff is missed trades. A buy limit just below the price can sit unfilled as the stock runs away. A resting limit order can also fill at the worst moment: a GTC buy at $40 on a $45 stock will execute if the stock gaps down to $30 on bad news. The fill is near $30, better than the limit, but you now own a stock that just collapsed.

Example

Hypothetical Copperline Energy (ticker CPLE) is quoted $24.90 by $25.10. A trader places a buy limit for 200 shares at $24.95. If a seller hits that bid, the order fills at $24.95, saving 15 cents per share, or $30, versus buying at the ask. If the stock instead climbs to $26 without trading at $24.95, the order never fills.

FAQ

What happens to a limit order if the price is never reached?

It remains open until it expires under its time-in-force setting or you cancel it. Nothing is executed.