Limit Order Explained: How to Buy and Sell Stocks at Your Price

What Is a Limit Order?

A limit order instructs your broker to buy or sell at a defined price or better.

It appears in the order book as a pending order until triggered, and once reached, the order matching engine executes it based on execution priority (price, then time).

This type of order helps traders control entry and exit prices, ensuring trades occur only under favorable market conditions.

How Limit Orders Differ from Other Order Types

Unlike a market order, which executes immediately, a limit order activates only when your target price is met.

This provides greater price control in trading and minimizes slippage during volatility.

Key differences:

• Market Order: Instant execution, little price control
• Limit Order: Price precision, no guaranteed fill
• Stop Order: Triggers at a price point, often used for stop-loss orders

Comparison: Limit, Market, and Stop Orders

Understanding how limit orders differ from market and stop orders is crucial before applying them in real trading situations.

Limit Order Purpose and Function

A limit order allows traders to buy or sell an asset at a specific price or better, ensuring greater control over trade execution.

By setting predefined price limits, traders can manage risk effectively, execute strategies with precision, and reduce emotional decision-making during market fluctuations.

Types of Limit Orders in Trading

There are several types of limit orders traders can use, depending on their trading strategy and market conditions. These include buy limit orders, sell limit orders, and stop-limit orders.

Buy Limit Order

A buy limit order is placed below the current market price and executes only when the market drops to that level.

It’s useful when you anticipate a temporary dip before the price moves higher.

Example:

If EUR/USD trades at 1.1000, you could set a buy limit order at 1.0950 to enter at a better price.

This approach is common in forex trading to capture short-term retracements within an uptrend.

Sell Limit Order

A sell limit order is placed above the current market price and executes when the market reaches that price.

It’s ideal for taking profits or opening short positions near potential resistance levels.

Example:

If GBP/USD trades at 1.2800, setting a sell limit order at 1.2850 executes automatically once the market hits that price.

It enables precise exits without constant monitoring.

Stop-Limit Order(Advanced Type)

A stop-limit order combines the features of a stop order and a limit order.

When the stop price is reached, it triggers a limit order at your defined price level.

Example:

You hold EUR/USD at 1.1000 and set a stop at 1.0950 with a limit at 1.0940. If the price hits 1.0950, your order becomes active but only fills above 1.0940.

How Limit Orders Work in Trading

A limit order is a buy/sell instruction that executes only when the market reaches your chosen price.

It stays in the order book until filled or canceled, then executes through the order matching engine.

If neither level is reached, the order remains pending. It is one of the main disadvantages of limit orders.

Depending on order duration settings, it may expire at the end of the day or remain active as a GTC (Good Till Cancelled) order.

Many trading platforms display unfilled limit orders in the order book, where traders can monitor liquidity, price limits, and order routing activity in real time.

When the Market Doesn’t Reach Your Limit

If the price never touches your chosen level, your order stays open until it’s canceled or expires.

Traders often monitor such pending orders to adjust or remove them when market conditions change.

When to Use a Limit Order in Trading

A limit order works best when precision matters more than speed.

It’s ideal for traders who plan their entries and exits rather than reacting to market noise.

Range-Bound or Sideways Markets

In a horizontal range, limit orders let traders buy near support and sell near resistance.

This method captures predictable price swings and avoids chasing breakouts, especially in stable forex pairs like EUR/USD or USD/JPY.

Retracements in Uptrends or Pullbacks in Downtrends

During a trend, limit orders help you enter at better prices during short corrections.

A buy limit order can catch a dip in an uptrend, while a sell limit works well for shorting temporary rallies.

It improves trading execution and removes emotional decision-making.

When You Need Precise Entries or Exits

When aiming for key price levels such as Fibonacci retracements or previous highs/lows, a limit order gives you full control.

It ensures trades execute only when your price is reached, supporting disciplined strategies and effective slippage control.

Examples of Limit Orders in Action

Here are some examples of how to action limit orders.

Buy Limit on EUR/USD After a Retracement

EUR/USD is trending upward, currently trading at 1.1100.

You believe it will briefly dip before continuing higher, so you place a buy limit order at 1.1050.

When the market retraces to that level, the limit order execution occurs, and it will enter your position at a lower cost.

Sell Limit on GBP/USD at a Resistance Level

GBP/USD trades near 1.2850, close to a strong resistance zone.

You expect the pair to test that level before falling again, so you set a sell limit order at 1.2850.

Once the market reaches your chosen price, your pending order executes automatically, and you sell at the top of the move.

Combining Limit Orders with Stop-Loss and Take-Profit

Suppose you place a buy limit order on EUR/USD at 1.0950, with a stop-loss order at 1.0900 and a take-profit at 1.1050.

This setup defines your entire trade entry and exit plan to minimise risk and lock in potential profits.

Combining limit orders with other tools gives you both price control and disciplined risk management.

Limit Order vs Market Order vs Stop Order

Understanding how different order types in trading work is key to better trade execution.

Each type suits a different goal depending on whether you value price control, speed, or flexibility.

Limit Order

A limit order lets you buy or sell only at a specific price or better.

It gives strong price control in trading, but doesn’t guarantee instant execution.

Use a limit order when you prefer accuracy over speed, which is perfect for planned trade entry and exit rather than impulse trades.

Market Order

A market order executes immediately at the best available price.

It’s ideal when timing matters more than precision, such as during news events or fast breakouts.

Use a market order when you need speed, but keep in mind the risk of slippage in low liquidity markets.

Stop Order

A stop order activates only after the market hits a predetermined stop price.

It’s commonly used for stop-loss orders or to join breakouts as momentum builds.

Use a stop order when managing risk or confirming trend direction rather than predicting turning points.

Knowing when to use each order type improves your trading execution and helps align your strategy with market conditions.

Time-in-Force Settings for Limit Orders

Time-in-force (TIF) determines how long a limit order stays active before it’s executed or expires.

These settings help traders align their strategies with market conditions.

Common time-in-force settings for limit orders include the following options, each offering different levels of flexibility and control.

Day Order

A Day Order expires automatically at the end of the trading day if it’s not filled.

It’s ideal for day traders who prefer not to leave pending orders overnight.

For example, a trader might place a buy order for EUR/USD during the day and let it cancel automatically if it isn’t filled by the session close.

GTC (Good Till Canceled)

A GTC limit order stays active until you manually cancel it.

It’s often used by swing traders waiting for long-term price levels.

For instance, a trader could keep a sell order on GBP/USD until the pair reaches a major resistance area.

GTD (Good Till Date)

A GTD order remains active until a specific expiry date.

This type is useful when planning trades around economic events.

For example, a trader might set a target price ahead of a major NFP announcement.

IOC (Immediate or Cancel)

An IOC order executes immediately for any available volume, and any unfilled portion is canceled.

It’s effective in low-liquidity markets, where quick trading execution helps avoid unnecessary delays.

FOK (Fill or Kill)

A FOK limit order must execute in full instantly or be canceled entirely.

It’s favored by institutional traders who seek execution certainty and want to avoid partial fills, especially during volatile sessions when slippage control is critical.

Advantages of Using Limit Orders in Trading

• Precise entry and exit prices: Set exact buy or sell levels so trades execute only at your chosen price.
• Reduced slippage: Protects against poor fills in volatile markets, ensuring smoother trading execution.
• Disciplined trading: Predefined orders prevent impulsive decisions and promote consistent strategies.
• Strategic flexibility: Ideal for pending orders and long-term planning, even when you’re away from the screen.

Disadvantages and Risks of Limit Orders

• No execution guarantee: If the market never reaches your limit price, the order remains unfilled and trading opportunities may be lost.
• Partial fills: In thin liquidity, only part of your order may execute, leaving smaller positions than intended.
• Missed profits: When prices reverse before reaching your limit, you might miss strong moves or potential gains.

Common Mistakes Traders Make with Limit Orders

• Unrealistic prices: Setting limits too far from the market often leaves orders unfilled.
• Mixing order types: Confusing stop orders with limit orders can trigger wrong trades.
• Forgetting old orders: Unchecked pending orders may execute unexpectedly.
• Ignoring volatility and spreads: Wide bid-ask spreads or fast moves can affect execution.

Conclusion

Using limit orders means trading on your own terms, not the market’s.

They help you achieve better price control, reduce risk, and maintain discipline under volatility.

In fast-moving forex markets, mastering limit orders can be the difference between reactive trading and true strategic execution.