Limit stock order
Family I · Instruments
Not to be confused with limit order, stock index, stock market index.
Limit stock order is an order type that names both a quantity of shares and a maximum purchase price or minimum sale price. It differs from a market order, which seeks immediate execution at whatever price is available. A limit order may remain unfilled, partially filled, or expire unfilled if the stock never trades at the specified price.
How a limit stock order works
A buy limit order is placed below the current market price, and a sell limit order is placed above it. The order enters the book at the stated limit and executes only at that price or a more favourable one. Unfilled quantity may rest in the book until it is executed, cancelled, or reaches any time-in-force limit set by the broker.
Brokers and venues differ in which time-in-force instructions they accept, such as day, good-till-cancelled, or immediate-or-cancel, and in whether extended-hours trading is available.
Worked example
The order fills at 47.45 because that is better than the 47.50 limit. If the lowest offer had remained at 48.20, no execution would occur.
Limit price and execution risk
The limit price caps the cost of a purchase or sets a floor for a sale, but it does not guarantee a fill. A stock may trade at the limit price without the order being executed if insufficient volume is available at that level, or if the order is behind others in the queue. Conversely, a marketable limit order can execute immediately at prices equal to or better than the limit.
Often confused with
- limit order
- A limit stock order is a limit order specifically for a stock, whereas a limit order can be placed on many asset classes including futures, options and currencies; the visible sign is the named underlying instrument.
- stock index
- A stock index is a statistical measure of a group of stocks, not an order instruction; the visible sign is that it is quoted as a level rather than a price with a quantity.
- stock market index
- A stock market index is a broad measure of a market segment, while a limit stock order is a trading instruction for an individual stock; the visible sign is the presence of an order quantity and limit price.