Business, Legal & Accounting Glossary
A limit order is an order to buy or sell a stock at a specific price or better.
In trading, a limit order is an order to buy or sell securities for a fixed price or better. For example, an investor can place a limit order to sell shares of company ABC for $100 or more, even if the stock is currently trading for under $95. Such a limit order would be called an above the markmarket order. A limit order can include instructions limiting the time it remains in effect. For instance, a limit order could be good until the end of the day or good until cancelled. A limit order book is a list of all buy and sell limit orders in effect for a particular security. In after-hours trading, a limit order is beneficial because lower volume can lead to greater price volatility.
A limit order describes the instruction an investor gives to his broker setting out how much he’s prepared to pay for shares (or any other asset for that matter).
In other words, if you say to your broker, “Pay up to six quid for LloydsTSB shares”, you’re specifying the maximum price you’re willing to pay, or setting a limit order.
If you’ve got a broker helping you to manage your share portfolio, you may wish to instruct him of prices at which he should buy or sell.
A limit order is not guaranteed to execute. A limit order can only be filled if the stock’s market price reaches the limit price. While limit orders do not guarantee execution, they help ensure that an investor does not pay more than a pre-determined price for a stock.
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This glossary post was last updated: 22nd March, 2020