As per the SEC definition: A limit order is an order to buy or sell a stock at a specific price or better. A buy limit order can only be executed at the limit price or lower, and a sell limit order can only be executed at the limit price or higher. 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.
A few points that need to be emphasized about limit orders:
- Default order type for all single option, spread and stock orders.
- The limit price for buy orders is placed below the current market price.
- The limit price for sell orders is placed above the current market price.
- Are not guaranteed a fill.
- Limit orders are especially useful on a low-volume or highly volatile stock.