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). When a limit order is triggered, it is filled as soon as possible at the price obtainable on the market.
Unlike a market order, which is executed at the current market price, a limit order to buy will only be executed at the predetermined price or lower. Limit orders provide more control over the price at which your trade is executed.
- Characteristics of limit orders
- How limit orders work
- Example of limit order
- Advantages and disadvantages of limit orders
- How can I place a limit order?
Characteristics of limit orders
- Price specification: A limit order allows you to specify the exact price at which you are willing to buy or sell a security. This provides control over the transaction price, ensuring that the trade will only be executed at the desired price or better.
- Conditional execution: The execution of a limit order is contingent upon the market price reaching the specified limit price. For a buy limit order, the market price must fall to the limit price or lower, while for a sell limit order, the market price must rise to the limit price or higher.
- Non-immediate execution: Unlike market orders, limit orders are not necessarily executed immediately. They remain open until the market reaches the specified price, the order expires, or the order is cancelled by you.
How limit orders work
When placing a limit order, you specify the price at which you are willing to buy or sell a security. The order remains open until it is either executed at the specified price or cancelled/expired. Limit orders can be particularly useful in volatile markets, where prices can fluctuate rapidly.
Example of a limit orderImagine that the current market price of share XYZ is USD 280 per share. You want to buy 10 shares at a maximum price of USD 250 per share, so you place a limit order to buy at USD 250. 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 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. |
Advantages and disadvantages of limit orders
Advantages
- Price control: Limit orders allow you to specify the exact price at which you are willing to buy or sell, providing more control over the transaction.
- Protection in volatile markets: By setting a limit, you can avoid the risk of buying at a higher price or selling at a lower price than intended during market fluctuations.
Disadvantages
- Non-execution risk: There is a possibility that the limit order may never be executed if the market price does not reach the specified limit price.
- Partial fills: In some cases, a limit order may be partially filled if there is not enough liquidity at the specified price.
How can I place a limit order?
You can place a limit order on all Saxo platforms.
- Open a trade ticket
- Choose Limit in the Type field
- Choose the number of shares
- Set a maximum price if you want to buy
- Set a minimum price if you want to sell
- Click Place Order to place the trade