Name your price and wait in line:a limit fills at that, or better, in time.
An order to buy or sell at a specified price or better.
A buy limit is placed below the current price; a sell limit is placed above. It only executes at the limit price or a more favourable one.
In plain words
A limit order is an instruction to buy or sell only at a stated price or a better one. A buy limit sits below the current price and waits for the market to come down to it; a sell limit sits above and waits for the market to rise.
See it move
Current price has reached Sell limit
Why it matters
It lets a trader name the price in advance instead of accepting whatever the market offers at that moment. The price is controlled but the execution is not: if the market never reaches the limit, the order is not filled.
Worked example
An example only. The figures are round and invented for the arithmetic: they are not market prices.
A pair trades at 1.1050 and a trader places a buy limit at 1.1000.
- 1The price falls to 1.1020the order waits, because 1.1020 is above the limit
- 2The price falls to 1.1000the order can now be filled at 1.1000 or lower
- 3Had the price turned up from 1.1005, the order would have stayed unfilled
The order fills only once the market trades at the limit price or better.
A common mistake
A limit order is not certain to be filled just because it has been placed. The market may stop short of the price, and the trade then never happens.
Check yourself
Educational information, not investment advice or a recommendation to trade.