Limit Order

Key Highlights

• A limit order is a type of trade order that lets investors buy or sell a security at a specific price or better, giving them more control over the price at which they make a trade.

• Advantages of limit order include better price control, flexibility and strategic trading.

What is Limit Order?

A limit order is a type of trade order that lets investors buy or sell a security at a specific price or better, giving them more control over the price at which they make a trade.

How Limit Orders Works?

• Buy Limit Order: This order is used to buy a security at a set price or lower. For example, if an investor wants to buy a stock at ₹50 or less, they would place a buy limit order at ₹50. The order will only go through if the price reaches ₹50 or drops below it.

• Sell Limit Order: This order is used to sell a security at a set price or higher. If an investor wants to sell shares for at least ₹60, they would set a sell limit order at ₹60. The order will be executed only if the price reaches ₹60 or rises above it.

Key Features of Limit Order

• Price Control: You decide the maximum price you’ll pay or the minimum price you’ll accept. This ensures you don’t get stuck with unfavorable prices.

• No Execution Guarantee: The order will only execute if the stock hits your specified price.

• Expiration Options: You can set an order to last for one day or until you cancel it (good-till-canceled).

Advantages of Limit Order

1. Better Price Control: You avoid overpaying or selling too low, which can happen with market orders, especially when the market is moving quickly.

2. Flexibility: You can place orders that execute during regular, pre-market, or after-hours trading.

3. Strategic Trading: Limit orders let you plan ahead by setting clear entry and exit points based on your analysis.

Disadvantages of Limit Order

1. Missed Trades: If the stock doesn’t reach your limit price, you might miss out on buying or selling.

2. Partial Fills: If there aren’t enough shares available at your price, only part of your order might be filled.

3. Market Conditions Matter: In volatile or low-volume markets, it may take a long time for your limit order to execute, or it might not fill at all.