how limit orders work
a limit order is the use of a pre specified price to buy or sell a security for example if a trader is looking to buy xyz s stock but has a limit of 14 50 they will only buy the stock at a price of 14 50 or lower if the trader is looking to sell shares of xyz s stock with a 14 50 limit the trader will not sell any shares until the price is 14 50 or higher by using a buy limit order the investor is guaranteed to pay the buy limit order price or better but it is not guaranteed that the order will be filled a limit order gives a trader more control over the execution price of a security especially if they are fearful of using a market order during periods of heightened volatility there are various times to use a limit order such as when a stock is rising or falling very quickly and a trader is fearful of getting a bad fill from a market order additionally a limit order can be useful if a trader is not watching a stock and has a specific price in mind at which they would be happy to buy or sell that security limit orders can also be left open with an expiration date limit order examplea portfolio manager wants to buy tesla inc s tsla stock but believes its current valuation at roughly 750 per share is too high and would like to buy the stock should it fall to a specific price the pm instructs his traders to buy 10 000 shares of tesla should the price fall below 650 good til canceled the trader then places an order to buy 10 000 shares with a 650 limit should the stock fall below that price the trader can begin buying the stock the order will remain open until the stock reaches the pm s limit or the pm cancels the order additionally the pm would like to sell amazon com inc s amzn stock but feels its current price of roughly 2 300 is too low the pm instructs his trader to sell 5 000 shares should the price rise above 2 750 good until canceled the trader will then put the order out to sell 5 000 shares with a 2 750 limit brokerage firms may not allow limit orders if they are illogical i e if a limit to buy is placed at greater than price brokerage firms may also offer this service to investors for free limit orders vs market orders