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What Is A Limit Order?

Limit order, how does it work when buying and selling stocks.
iStock.com | Irina_Strelnikova

You are likely to encounter the term limit order when selling or buying stocks through a brokerage app. When trading shares or stocks, a limit order can be used to ensure that the order will be executed only at the price that you wish to sell or buy at.

For example, if the limit order is set to $10 when buying shares, the purchase price will not be above $10. The order could be executed at a lower price if the price of the share dropped when the order was placed, or exactly $10, but never above.

Conversely, if a stock or share is sold utilising a limit order, the sale will be executed at the given limit order price or above. So, if the limit is set to $10 for the sale of a share, then the order will be executed at $10 or above, but never below.

Stock and share prices vary constantly. Seconds can make a difference. Therefore, limit orders are a helpful tool to make sure that a stock or share is bought or sold at the desired price.