Limit Orders
Fill only at my price or better. A limit order joins the order book queue and waits for someone to trade with.
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Text version · Stock Trading: Next Steps, lesson 3: “Limit Orders”
Fill only at my price or better. A limit order joins the order book queue and waits for someone to trade with.
Limit order = only at my price
A limit order states "the most I'll pay" (buy) or "the least I'll accept" (sell). If the price isn't good enough, it would rather not fill.
Waiting in line for a counterparty
A limit order that can't fill yet joins the order book queue. At the same price it's first come, first served under price-time priority, until someone is willing to trade at your price.
The part that reaches fills first
When a limit buy is at or above the lowest ask, it fills right away at the ask prices, but never above your limit. If the levels run out before you have enough, the rest rests at your limit and waits.
Key takeaways
- A limit order guarantees the price, but not the fill.
- A buy limit below the lowest ask (or a sell limit above the highest bid) goes into the order book and waits.
- A limit order that can fill right away first fills at the same or better prices, and any remainder queues at the limit price.
- At the same price it's first come, first served: the orders ahead of you must fill before your turn comes.
Try it yourself
You can do these exercises in this lesson's interactive simulation:
- Submit a buy with a 99.80 limit: it shows up among the bids with a cyan "You" marker.
- Turn on "Let other traders in" at the top right and wait for someone's sell order to fill your limit order.
- Set the limit above the lowest ask and submit: watch part of it fill first while the rest joins the queue.
- Switch to "Sell" and place a limit sell above the highest bid.
Quiz and explanations
- 1. The lowest ask is $100.05 and you place a limit buy at $99.90. What happens?
- Answer: It joins the bid queue and waits.Nobody is willing to sell to you at that price, so it has to wait in the queue.
- 2. You place a limit sell at $101 and the highest bid is $100. It will…
- Answer: Join the ask queue.No buyer is paying $101, so the order waits on the ask side.
- 3. The asks show 200 shares at $100.05 and 300 shares at $100.10. You submit a 400-share buy with a $100.05 limit. What happens?
- Answer: 200 shares fill at $100.05 and the other 200 queue at $100.05.A limit order never pays more than $100.05: it takes the 200 shares at that level, and the remaining 200 wait on the bid side at $100.05.
Terms in this lesson
- Ask: The price sellers are asking for. When you buy, you trade at the Ask.
- fill (Fill): A buy order and a sell order matching at the same price, so the trade actually happens.
- limit order (Limit Order): An order that only fills at your price or better: the price is guaranteed, the fill isn't.
- liquidity (Liquidity): How many orders are waiting near a price; the deeper the book, the harder it is to move the price.
- market order (Market Order): An order that fills right away at whatever price is available: the fill is guaranteed, the price isn't.
- order book (Order Book): All the buy and sell orders that haven't filled yet, lined up by price.
- price-time priority (Price-Time Priority): The matching rule: better-priced orders fill first, and orders at the same price queue in the order they arrived.
- slippage (Slippage): The difference between the price you expected and your actual average fill, which happens when a large market order eats through several price levels.