What Is a Limit Order: How It Works, Vs. Market Order

Do you want complete control over your trading prices? Market volatility makes trading unpredictable, but a limit order will give a guarantee that you won’t pay more (or sell for less) than your specified price.

This price control has a trade-off. The market might not reach your desired price level to fill your limit order, especially when you have rapidly moving conditions or low-volume securities. Market orders execute right away at current prices, while limit orders let you control your entry and exit points.

Picture this as your personal price threshold – you tell the market “I’ll only buy or sell at this price or better.” Your order stays active for a specific time frame, usually up to 30 days, until the price matches your target or you decide to cancel.

Want to become skilled at limit orders and gain control of your trading prices? Let’s dive into how they work and the best times to use them.

What Is a Limit Order in Trading

A limit order tells brokers to trade at your specified price or better. This differs from a market order, which executes immediately regardless of price.

📌 Buy Limit Orders – Set a maximum price you’re willing to pay.
📌 Sell Limit Orders – Set a minimum price you’ll accept.

This makes limit orders ideal for traders who want price control, especially during stock trading involving volatile or low-volume stocks.

Buy limit orders explained

Buy limit orders let you set a maximum purchase price that acts as a price ceiling. To cite an instance, your buy limit order for XYZ stock at $42 executes only if the stock price drops to $42 or lower. This strategy becomes valuable especially when you have an overvalued stock or volatile market conditions.

Sell limit orders explained

Sell limit orders work by setting a minimum selling price that creates a price floor. Your shares of a company trading at $20 with a sell limit order at $36 will sell only if prices hit $36 or climb higher. This approach helps secure profits without watching the market constantly.

Key characteristics of limit orders

Limit orders separate themselves from other order types through these distinctive features:

• Price guarantee: Orders never execute at prices worse than specified
• Execution uncertainty: Orders might not fill if price conditions remain unmet
• Duration flexibility: Orders can run for one day, good-till-canceled (up to 180 days), or extended hours
• Extended hours compatibility: These orders are the only type allowed during pre-market and after-hours trading

Limit orders are a great way to get results with illiquid stocks that have wide bid-ask spreads (usually above 5 cents) or when trading volumes exceed 100 shares.

How Limit Orders Work in Practice

Learning to place limit orders effectively requires understanding how they work. This tool can help you get better prices in different market conditions.

Setting price parameters

Price specification forms the core of every limit order. Buy limit orders need a maximum purchase price that creates a ceiling for what you’ll pay. Therefore, a buy limit order placed at $144 only executes when prices hit $144 or drop below it. Sell limit orders need a minimum acceptable price that creates a price floor. Your broker executes these orders only when market prices reach or go above your specified level.

Order duration options

Your brokerage likely has several timeframe choices for limit orders:

• Day only: Valid until market close on the current trading day
• Good till canceled (GTC): Stays active through multiple trading sessions until executed or canceled manually, usually up to 180 calendar days
• Extended hours options: Has pre-market (7 a.m. to 9:25 a.m. ET) and after-hours sessions (4:05 p.m. to 8 p.m. ET)

Some platforms provide combination choices like Day + extended hours or GTC + extended hours that enable continuous trading across all sessions.

Execution process

Limit orders use a “price time priority” system where orders get timestamped and execute chronologically when multiple orders exist at the same price. Your order changes into a market order once triggered and seeks the best available price at or better than your limit. Partial fills happen often when there’s not enough volume at your specified price.

When limit orders don’t get filled

Several factors can stop limit orders from executing:

1. Limited market volume or liquidity
2. Price hasn’t reached your specified level
3. Not enough funds in your account when execution happens
4. Orders too small to attract counterparties, especially during high gas/fee environments
5. Earlier orders at the same price taking priority

Price changes or market volatility might cause prices to skip past your limit briefly, which means you miss execution opportunities.

Advanced Limit Order Techniques

Limit orders go beyond simple execution and provide advanced techniques that experienced traders use to maximize profits and minimize risks. These strategies help you direct your way through complex market situations with greater precision.

Scaling in with multiple limit orders

Scaling in is a strategic way to build a position gradually through multiple limit orders at different price levels. You establish a target price and invest step by step as the stock price decreases. This technique helps lower your average purchase price.

A trader who wants to buy 1,000 shares at $20 might split the purchase: 250 shares at $20, another 250 at $19.90, 250 more at $19.80, and the final 250 at $19.70. The result gives an average purchase price of $19.85 instead of $20.

Benefits of scaling in include:

• Starting with smaller positions reduces risk
• Winning trades have enhanced profit potential
• Large positions remain hidden from other traders
• Better average prices than single entries become possible

Using limit orders with options trading

Options use limit orders much like stocks do, but with specific contract considerations. A buy limit order for options sets a maximum price per contract. This ensures purchases happen only at your specified price or lower. Sell limit orders set a minimum amount you’ll receive, which guarantees sales only at your limit price or higher.

Options limit orders face unique challenges. Orders might not fill completely if there aren’t enough contracts at your limit price. These orders also don’t execute during extended or overnight hours.

Limit order strategies for different market conditions

Market conditions shape how limit order tactics work to improve execution results. Limit orders help avoid unexpected price jumps in volatile markets. This ensures you never pay too much or sell too low. They work great when you can’t watch markets actively but have specific price targets.

A detailed risk management framework emerges when you pair limit orders with stop-loss orders. This creates clear boundaries for both profit-taking and loss prevention. Notwithstanding that limit orders have strengths, they might never fill if prices don’t reach your specified levels.

Limit orders become crucial for thinly traded securities. They help you avoid slippage that could otherwise eat into your profits.

Understanding liquidity is key when applying limit orders, especially for penny stocks or volatile small caps.

Comparing Order Types for Different Goals

Picking the right order type makes a big difference in reaching your trading goals. Different order types work better depending on your needs and market conditions.

Limit orders vs market orders

These two orders differ mainly in how they handle execution certainty and price control. Market orders execute right away at the best price available, which means you’re sure to make the trade but not at what price. Limit orders work the other way around – you know your price but can’t be sure the trade will happen.

Market orders shine when you trade popular stocks with tiny bid-ask spreads (usually a penny) or small amounts (under 100 shares). Limit orders become your best friend when getting the right price matters more than speed, especially with less-traded stocks or big trades where price gaps can affect your returns by a lot.

Limit orders vs stop orders

Stop orders work differently from limit orders. They kick in when a stock hits a certain price point and turn into market orders that execute at the next price available. Here’s what makes them different:

• Limit orders help you get better prices
• Stop orders protect you from price drops
• Limit orders let you set exact prices
• Stop orders will definitely execute once triggered but at unknown prices

Stop orders behave differently based on whether you’re buying or selling. Buy stops activate when prices go up, while sell stops (also called stop-loss orders) trigger when prices fall to help cut losses.

Limit orders vs stop-limit orders

Stop-limit orders mix both types together and give you more control by using two prices: where to trigger and where to limit. The stop price starts the order, and the limit price sets boundaries for the actual trade.

This combo gives you better protection than regular stop orders by keeping you safe from bad prices when markets get wild. The trade-off is that your order might not happen if prices move too fast past your limit.

Stop-limit orders let you control both the trigger point and final price, which makes them great tools for planning your entry and exit strategies.

Step-by-Step Guide to Placing Limit Orders

The right way to place a limit order depends on your trading platform. Each platform has its own process that changes based on whether you use desktop software, mobile apps, or trade outside regular hours.

On desktop trading platforms

Desktop trading platforms share a common sequence for limit orders:

1. Log into your brokerage account and direct yourself to the trading section
2. Select the security you wish to trade
3. Choose “Limit” as your order type (not “Market”)
4. Enter the quantity of shares you want to buy or sell
5. Set your desired limit price—the maximum you’ll pay or minimum you’ll accept
6. Select the order’s duration: day only, good-till-canceled (up to 180 days), or extended hours options
7. Review and submit your order

Your platform’s charts let you place limit orders with a simple click on price levels. The order ticket automatically fills with your selected price.

On mobile trading apps

Mobile apps make the limit order process quick and simple:

1. Open your trading app and find the security
2. Tap “Trade” or equivalent button
3. Select “Buy” or “Sell”
4. Choose “Limit” from order type options
5. Enter quantity (shares or dollar amount)
6. Set your limit price
7. Select duration
8. Review and confirm

Quick-trade toggles bypass confirmation screens in some apps. The platform’s price scales often include a “Plus button” that helps place pending orders right from charts.

Special considerations for after-hours trading

Trading after hours (4:05 p.m. to 8 p.m. ET) comes with extra rules:

1. Limit orders are your only option—market orders don’t work during extended hours
2. Orders work only in that specific session unless marked otherwise
3. Set practical limit prices as bid-ask spreads widen after hours
4. ECNs (Electronic Communication Networks) don’t connect markets after hours, which might lead to poor pricing
5. Look for “GTC_EXT” (Good Till Canceled including Extended Hours) settings if your platform offers them

After-hours trading gives you flexibility. Remember that low liquidity might stop your limit orders from executing even at your price point.

Conclusion

Limit orders offer price precision and strategic control, especially in volatile or thinly traded markets.

They are valuable tools for:
✅ Protecting against bad fills
✅ Navigating extended trading hours
✅ Executing multi-level entry strategies

Understanding the differences between order types, market conditions, and how platforms handle limit orders will sharpen your trading game.

Want to become a more confident trader? Start with passive vs. active investing to choose a trading style that fits you.

FAQs

1. What are the main advantages of using limit orders?

Limit orders provide precise price control, ensuring you never pay more when buying or receive less when selling than your specified price. They’re particularly useful for trading illiquid stocks and during extended trading hours.

2. How do limit orders differ from market orders?

While market orders execute immediately at the best available price, limit orders only execute at your specified price or better. Limit orders offer price certainty but don’t guarantee execution, whereas market orders guarantee execution but not price.

3. Can limit orders be used in after-hours trading?

Yes, limit orders are the only type of orders accepted during after-hours trading. However, be aware that decreased liquidity during these hours may affect execution, even at your specified price.

4. What happens if a limit order isn’t executed?

If the market price doesn’t reach your specified limit price, your order won’t be filled. This is one of the main drawbacks of limit orders, especially in volatile markets where prices fluctuate rapidly.

5. How can I place a limit order on a mobile trading app?

To place a limit order on a mobile app, typically you need to select the security, choose “Limit” as the order type, enter the quantity and your desired price, select the order duration, and then review and confirm. The exact steps may vary slightly depending on the specific app you’re using.