A limit order is a type of order, that allows you to buy or sell a security at a predetermined price. When you place a limit order, you establish the maximum price at which you are willing to buy (or the minimum price when selling). If the market reaches your specified price, the order will automatically be executed.
Unlike a market order, which is executed at the current market price, a limit order will only be executed if the specified price is reached. Limit orders provide more control over the price at which your trade is executed.
How to place a limit order
It is very simple to place a limit order. The steps below will show you how to place a limit order on a stock trade:
- Open a trade ticket
- Choose Limit in the Type field
- Choose the number of shares
- Set a maximum price if you want to buy (long)
- Set a minimum price if you want to sell (short)
- Click Place Order to place the trade
You can use the same procedure for other securities.
Limit order example (buy)
Suppose you want to buy 10 shares in company XYZ at a maximum price of USD 250 per share.
The current market price is USD 280 per share, so you decide to place a limit order.
You set the duration to one week, meaning that the order will remain active for one week from the time it is placed. If the order is not executed within that time frame, it will expire.
Scenario 1: The price of the stock drops to USD 250.
Your order is automatically executed and you buy 10 shares at USD 250.
Scenario 2: The stock price of the company remains above USD 250 for a week ahead.
Since your order had a duration of a week, the order will expire.
In most cases, you can modify and cancel your order as long as it is active and has not been executed by navigating to Orders. For further information, see Trading Conditions.