Definition
Limit Order
A limit order specifies the maximum price a buyer will pay or the minimum a seller will accept, executing only at that price or better and resting in the order book until it can be filled.
On Indian exchanges, a limit order gives price control: a buy limit at ₹100 will not fill above ₹100. It may not execute at all if the market never reaches the limit, the trade-off for avoiding the slippage of a market order. Limit orders provide the resting liquidity that makes up the order book.
Limit orders pair with validity conditions such as day, IOC and FOK, and with disclosed quantity for large sizes. They are the workhorse of careful execution, especially in less liquid stocks where a market order could sweep several price levels and incur heavy impact cost.
Related terms
- IOC Order (Immediate or Cancel)An Immediate or Cancel order executes immediately against available orders to whatever extent possible, and any unfilled portion is cancelled instantly rather than resting in the order book.
- Day OrderA day order is valid only for the trading session in which it is placed; if it is not executed by the close, it is automatically cancelled and does not carry over to the next day.
- Disclosed Quantity (Iceberg Order)Disclosed quantity, the basis of an iceberg order, shows only a portion of a large order to the market at a time, hiding the full size to reduce market impact and information leakage.
- Stop-Loss OrderA stop-loss order becomes active and is sent to the market only when the price reaches a specified trigger level, used to limit losses or protect profits on an existing position.
Plain-English explainer from The Dispatch Investors Encyclopedia. General information, not financial advice.