A limit order is a type of order to buy or sell a security at a specific price or better.
When you place a limit order to buy a security, the order will be executed at the limit price or lower. Conversely, when you place a limit order to sell a security, the order will be executed at the limit price or higher.
For example, if you want to buy a stock, but don’t want to pay more than $50 per share, you could place a limit order to buy the stock at $50. If the stock’s price falls to $50 or below, your order would be executed.
Similarly, if you own a stock and want to sell it, but don’t want to sell for less than $100 per share, you could place a limit order to sell at $100. If the stock’s price rises to $100 or above, your order would be executed.
Limit orders allow traders to have precise control over when their orders are filled and at what price. However, there is no guarantee that a limit order will be executed, as it requires the market price to reach the limit price. If the market price never reaches the limit price, the order will not be filled.
It’s also worth noting that limit orders may be partially filled in situations where the market has limited liquidity at the desired price. For instance, if you place a limit order to buy 100 shares at $50, and only 50 shares are available at that price, your order would be partially filled. You would purchase the 50 shares available, but the rest of your order would remain open until more shares become available at your limit price or you decide to cancel the order.