Limit order

A limit order instructs a broker to buy or sell a security only at a specified price or better. A buy limit order executes at the limit price or lower; a sell limit order executes at the limit price or higher. The trade-off is fundamental: a limit order guarantees the price you'll get, but it does not guarantee the order will ever be filled.

Suppose a stock trades at $52 and an investor places a buy limit at $50. The order sits until the stock falls to $50 or below — if it never does, the order never executes. On the sell side, an investor holding shares at $52 might enter a sell limit at $55, locking in that they will only sell at $55 or higher. Contrast this with a market order, which fills immediately at the best available price, guaranteeing execution but not price.

Order placement follows a pattern worth memorizing: buy limits are placed below the current market (you want to buy cheaper), and sell limits are placed above it (you want to sell higher). The mnemonic pairing is BLiSS (buy limits and sell stops below) and SLoBS (sell limits and buy stops above). Limit orders can be day orders, which expire if unfilled, or good-til-canceled (GTC). One risk: a stock can trade at the limit price without your order filling if other orders are ahead of you in line.

Order types are a staple of the SIE, Series 7, and Series 66 exams. Expect questions asking where a limit order is placed relative to the market, whether it will execute given a sequence of prices, and how limit orders differ from stop and stop-limit orders.