Limit Orders: How They Work & When to Use Them

What Is a Limit Order?

A limit order is an instruction to your broker to buy or sell a stock at a specific price or better. Unlike a market order that executes immediately at whatever price is available, a limit order sets a price boundary that must be met before the order fills.

When you place a buy limit order, you specify the maximum price you are willing to pay. The order will only fill at your limit price or lower. When you place a sell limit order, you specify the minimum price you are willing to accept. The order will only fill at your limit price or higher.

Limit orders are the most commonly used order type among experienced traders because they provide price control. You decide in advance what price is acceptable, and the order either fills at that price or not at all.

Buy Limit Orders

A buy limit order is placed below the current market price. You use it when you want to buy a stock but believe you can get it at a lower price than where it is currently trading.

Example

A stock is currently trading at $52.00. You have analyzed the chart and identified support at $50.00. You place a buy limit order at $50.00. Your order sits in the market, waiting. If the price drops to $50.00 or below, your order fills. If the stock never drops to $50, your order remains unfilled and you do not enter the trade.

When to Use Buy Limit Orders

• Pullback entries: You have identified a swing trading setup and want to buy on a pullback to a specific support level.
• Gap fills: You expect a stock to retrace and fill a gap, and you want to buy at the gap fill level.
• Scaling in: You want to add to a position at lower prices and set limit orders at predetermined levels.

Sell Limit Orders

A sell limit order is placed above the current market price. You use it when you want to sell a stock at a higher price than it is currently trading.

Example

You bought a stock at $50.00 and your profit target is $55.00. You place a sell limit order at $55.00. When the price reaches $55.00 or higher, your order fills and you take your profit. If the price never reaches $55, the order remains unfilled and you continue to hold the position.

When to Use Sell Limit Orders

• Profit targets: You have a specific price at which you want to take profits based on resistance levels or risk-reward calculations.
• Scaling out: You want to sell portions of your position at progressively higher prices.
• Passive selling: You want to exit at your target without watching the screen all day.

How Limit Orders Are Executed

When you submit a limit order, it enters the order book at your specified price. The order book is a queue of all buy and sell orders at various price levels.

Your limit order will fill when:

1. The market price reaches your limit price.
2. There is a counterparty willing to trade at your price.
3. All orders ahead of yours in the queue at the same price have been filled (price-time priority).

If the stock reaches your limit price but there are already many orders at that price ahead of yours, you may receive a partial fill or no fill at all. This is more common with popular, highly liquid stocks where many traders are placing orders at the same level.

Advantages of Limit Orders

• Price control: You never pay more than your limit price (buy) or receive less than your limit price (sell).
• No slippage: Unlike market orders, limit orders do not suffer from slippage in fast-moving markets.
• Set and forget: Place the order and walk away. It will execute automatically if the price is reached.
• Discipline: Forces you to define your entry and exit prices in advance, supporting a structured trading plan.

Disadvantages of Limit Orders

• No execution guarantee: If the price never reaches your limit, the order does not fill. You may miss a trade entirely.
• Partial fills: In some cases, only part of your order fills at the limit price, leaving you with a smaller position than intended.
• Missed opportunities: Being too precise with your limit price can cause you to miss excellent setups that come within pennies of your order.
• False sense of security: A limit order does not protect against gaps. If a stock gaps through your sell limit in a fast-moving downtrend, it will not fill at your limit.

Limit Orders vs. Market Orders

For a detailed comparison, see our guide on limit vs. market orders.

Tips for Using Limit Orders Effectively

Account for the Bid-Ask Spread

When placing a buy limit order, remember that the stock's ask price is what you need to buy at, not the last traded price. If a stock's last trade was $50.00 but the ask is $50.05, a buy limit at $50.00 may not fill unless the ask drops to $50.00 or below.

Use Limit Orders for Illiquid Stocks

If you trade stocks with wide bid-ask spreads, always use limit orders. A market order on a stock with a $0.50 spread can cost you significantly on both entry and exit.

Give Slight Cushion

If you want to buy at support at $50.00, consider placing your limit at $50.10 to $50.20 to increase the probability of getting filled. The slightly worse price is usually worth the increased probability of execution.

Time in Force Settings

• Day order: The limit order is active only for the current trading day. If unfilled, it cancels at the close.
• GTC (Good Till Cancelled): The order remains active until filled or until you cancel it, typically up to 60-90 days depending on the broker.
• IOC (Immediate or Cancel): The order fills whatever it can immediately and cancels the rest.
• FOK (Fill or Kill): The entire order must fill immediately or it is cancelled entirely.

Frequently Asked Questions

Can a limit order fill at a better price than my limit?

Yes. If you place a buy limit at $50.00 and the price drops to $49.90 with available sellers at that price, your order may fill at $49.90. The limit price is the maximum you will pay, not the exact price you will pay. This is a common and welcome surprise called price improvement.

What happens to my limit order after hours?

Standard limit orders are only active during regular trading hours (9:30 AM to 4:00 PM ET). If you want your limit order active during extended hours, you need to specifically enable extended hours trading in your order settings, if your broker supports it.

Should I use limit orders for stop losses?

You can use stop-limit orders that combine a stop trigger with a limit price. However, be aware that a stop-limit order carries the risk of not filling if the stock moves too quickly past your limit price. For protective stop losses, standard stop-loss orders (which convert to market orders when triggered) are generally safer.

Why did my limit order not fill even though the price hit my limit?

Several reasons are possible. The stock may have only briefly touched your price without enough volume to fill all orders at that level. There may have been orders ahead of yours in the queue. Or the stock may have hit your price on the bid side but not the ask side. Price touching your level is not a guarantee of execution.

How far from the current price should I place my limit order?

This depends on your strategy. For pullback entries, place your limit at the identified support level. For profit targets, place it at the identified resistance level. The distance from the current price is determined by your analysis, not by a fixed rule.