A limit order is an instruction to buy or sell an asset at a stated price or better. A limit buy will only fill at the limit price or lower, and a limit sell only at the limit price or higher. If the market never reaches that level, the order simply waits, unfilled. Limit orders are used by individual investors, professional market makers and automated strategies on stock exchanges, futures exchanges, foreign exchange platforms and cryptocurrency exchanges.
The limit order is the opposite of a market order, which trades at once at whatever price is available. Because a limit order that does not trade immediately rests in the order book, limit orders are what create the visible bids and offers that other traders hit. That makes them the building block of the exchange itself: the queue of resting limit orders is the market's liquidity.
Limit order in plain terms
Imagine putting a note on a second-hand car dealer's desk: "I will buy that car, but only for 9,000 or less." If the dealer agrees to that price, or a lower one, the deal happens. If not, the note stays on the desk and nothing changes hands. You never pay more than you wrote down, but you might go home without the car.
A limit sell works the same way from the other side: "I will sell my car, but not for less than 10,000." The order protects your price and gives up the certainty of a deal. That trade-off, price control against the risk of missing the trade, sits behind every limit order on every market.
How a limit order works
When a limit order reaches an exchange, the matching engine first checks whether it can trade against orders already resting on the other side of the book. A buy limit at or above the best offer, or a sell limit at or below the best bid, is "marketable" and executes at once, up to the quantity available at prices within the limit. Whatever is left, or the whole order if nothing matches, joins the book.
Most exchanges rank resting orders by price-time priority: better prices are filled first, and among orders at the same price the earliest one is filled first. A trader who adds a limit order therefore joins a queue, and the order can sit for minutes, days or longer before the price comes to it. Partial fills are common: a limit order for 1,000 shares can fill 300 now and the rest later, or never.
A trader who places a resting limit order is called a maker, because the order adds liquidity to the book; the counterparty who later trades against it is the market taker. Many exchanges charge makers a lower fee, or pay them a rebate, for exactly that reason.
Duration and execution instructions
Limit orders usually carry a time-in-force and sometimes extra conditions:
- Day order. The order is cancelled automatically if it has not filled by the end of the trading session.
- Good 'til cancelled (GTC). The order stays live until it fills or the trader cancels it, although many brokers cap this at a set number of days.
- Immediate or cancel (IOC). Whatever can fill at once does so and the remainder is cancelled rather than placed in the book.
- Fill or kill (FOK). The order must fill in full immediately or not at all.
- Post-only. Common on crypto exchanges, this flag rejects the order if it would trade immediately, guaranteeing that it rests in the book and is charged the maker fee.
A limit order can also be attached to a trigger. A stop-loss order that becomes a limit order once the stop price is reached is called a stop-limit order.
Limit orders in stock, FX and crypto markets
On stock exchanges a limit order is routed by a broker to an exchange or another venue. In the United States, displayed limit orders in listed stocks are protected by order-handling rules that require them to be shown to the market, and stocks quote in set price increments (ticks), so a limit price must be a valid tick. Limit orders placed outside regular hours may only be eligible in pre-market or after-hours sessions.
In foreign exchange, much trading is dealer-based rather than exchange-based, so a retail "limit" or "take-profit" order is held by the broker and filled when its price feed reaches the level, usually net of the FX spread.
On a centralized crypto exchange the order book works much as on a stock exchange, except that trading runs around the clock and minimum order sizes are set per trading pair. On a decentralized exchange built on an automated market maker there is no order book at all; "limit orders" there are usually off-chain orders signed by the user and executed by a third party, or concentrated-liquidity positions that only trade within a chosen price band.
Advantages and risks
The main advantage is price control. A limit order cannot suffer slippage beyond the stated price, which matters most in thin, fast-moving or low-liquidity markets where a market order can sweep through several price levels. Traders also use them to buy dips or take profit at planned levels.
The risks are mostly about not trading. The order may never fill, or fill only partly, while the price moves away; a buyer who set a limit just below the market can miss a rally entirely. A resting order can also be filled at an awkward moment, for example straight after bad news, because the order does not know why the price fell. Large resting orders reveal intentions to other traders, which is one reason institutions slice them up or use dark pools. Very large visible orders that are not meant to trade raise a separate issue, covered under buy wall and sell wall: placing them with intent to cancel is illegal spoofing in regulated futures markets.