Limit Order

A limit order is a type of order to buy or sell a security at a specified price or better. It provides traders and investors with more control over the execution price compared to a market order, which executes immediately at the current market price. When placing a limit order, the trader specifies the maximum price they are willing to pay when buying, or the minimum price they are willing to accept when selling. The order will only be executed if the market price reaches the specified limit price. If the market price does not reach the limit price, the order remains unfilled. This type of order is particularly useful in volatile markets or when trading less liquid securities, as it helps to avoid unfavorable price movements. # What is a Limit Order? A limit order is a directive given to a broker to buy or sell a security at a specific price or better. Unlike a market order, which is executed immediately at the current market price, a limit order ensures that the transaction will only occur at the predetermined price or a more favorable one. This allows traders to have greater control over the price at which they buy or sell securities. # How Does a Limit Order Work? When placing a limit order, the trader sets a price limit for the transaction. For a buy limit order, the trader specifies the highest price they are willing to pay. Conversely, for a sell limit order, the trader sets the lowest price they are willing to accept. The order will only be executed if the market price reaches or surpasses the specified limit price. If the market price does not meet the limit price, the order remains unfilled. This mechanism helps traders avoid executing trades at unfavorable prices, providing a safeguard against market volatility and illiquidity.