Term: Limit Order

A limit order is an instruction to buy or sell a security at a specific price or better, rather than at whatever price the market happens to offer right now. When you place a limit order, you set the maximum price you're willing to pay (for a buy) or the minimum price you're willing to accept (for a sell), and the order will only execute at that price or a more favorable one.

This is different from a market order, which fills immediately at the best available price regardless of what that price is. With a limit order, price is controlled but timing and even completion are not: if the market never reaches your specified price, the order simply sits unfilled, either until it's cancelled or until it expires based on how long you told the broker to keep it active.

The nuance that trips up beginners is that a limit order guarantees price, not execution. You might set a buy limit at $50 hoping to get a good entry, but if the stock never drops to $50, you never get in, even if it then rallies to $60 without you. Conversely, a sell limit might miss a fast-moving drop where the price blows through your level without ever trading exactly there, especially in thin or fast markets where prices can gap.

Another subtlety: even if the market does touch your limit price, you're not guaranteed a fill. Limit orders are generally filled in the order they were received at that price, so if there are many orders ahead of yours at the same level, the price could touch and reverse before you're reached.