What is a Limit Order? Example What is a Limit Order?
The limit order is a common order type that is widely employed by investors who want to specify a price that they are willing to buy/sell an underlying instrument. What is the Difference between a Limit Order and a Market Order? In contrast to market orders, which guarantee an execution, limit orders allow you to determine the price you are willing to pay or the price you are willing to collect for an order. Beware! Limit orders carry the risk that the stock may never reach your limit price. What if I want a Specific Guaranteed Fill? If you want a guaranteed execution, enter a market order.
Example
Why use a Limit Order?
XYZ is trading at $250.00 and you would like to purchase the underlying at the maximum price of $249.50 or better. 1) What to do? You must send a limit order to buy XYZ at $249.50. Enter the Order: Enter a limit order for XYZ at $249.50 2) What happens next? You are either executed at the price of $249.50 or better or your order is never executed.