Limit Order

What is a limit order?

An order in which the customer specifies a minimum sale price or maximum purchase price, as contrasted with a market order, which implies that the order should be filled as soon as possible at the market price. (Source: CFTC)

A limit order is an order to buy or sell a security at a specific price. A buy limit order can only be executed at the limit price or lower, and a sell limit order can only be executed at the limit price or higher. When you place a market order, you can't control the price at which your order will be filled.

For example, if you want to buy the stock of a "hot" IPO that was initially offered at $9, but don't want to end up paying more than $20 for the stock, you can place a limit order to buy the stock at any price up to $20. By entering a limit order rather than a market order, you will not be caught buying the stock at $90 and then suffering immediate losses if the stock drops later in the day or the weeks ahead.

Remember that your limit order may never be executed because the market price may quickly surpass your limit before your order can be filled. But by using a limit order you also protect yourself from buying the stock at too high a price. Some firms may charge you more for executing a limit order than a market order. (Source: SEC)

A limit order is an order to buy a security at no more (or sell at no less) than a specific price. This gives the customer some control over the price at which the trade is executed, but may prevent the order from being executed ("filled").

A buy limit order can only be executed by the broker at the limit price or lower. For example, if an investor wants to buy a stock but doesn't want to end up paying more than $20 for the stock, the investor can place a limit order to buy the stock at any price up to $20. By entering a limit order rather than a market order, the investor will not be caught buying the stock at $30 if the price rises sharply.

A sell limit order can only be executed at the limit price or higher.

A limit order may never be executed if the market price surpasses the limit before the order can be filled. Because of the added complexity, some brokerages will charge more for executing a limit order than they would for a market order. (Source: Wikipedia)

See also:
Limit Order Blog Posts