Reviewed by Gotrade Internal Analyst
When you buy or sell a stock, you often see two choices: market order and limit order.
If you care about the exact price you pay or receive, the limit order is usually your best friend.
This article explains what a limit order is, how it works, why it gives you more price control, and when it is safer than a market order for retail investors.
What Is A Limit Order?
A limit order is an instruction to buy or sell a stock at a specific price or better.
You are telling the market:
- “Buy this stock, but only if I can get it at this price or cheaper.”
- “Sell this stock, but only if I can get at least this price.”
If the market never reaches your limit price, your order may not execute.
In other words, you are choosing price control over guaranteed execution.
How A Limit Order Works
When you place a limit order, you set:
- The stock or ETF
- Quantity
- Limit price
- Time in force (for example, “day” or “good till canceled”)
Buy limit order
- You set a maximum price you are willing to pay.
- The order will only fill at that price or lower.
- If the stock trades above your limit, it will not execute.
Example: You place a buy limit at 100. If the stock is trading at 101, your order will wait. If the price drops to 100 or below, it can be filled.
Sell limit order
- You set a minimum price you are willing to accept.
- The order will only fill at that price or higher.
- If the stock trades below your limit, it will not execute.
Example: You place a sell limit at 50. If the stock is at 49, your order will wait. If the price rises to 50 or above, it can be filled.
When Limit Orders Are Safer For Retail Investors?
Limit orders are especially helpful in situations where price can move quickly or liquidity is low.
1. Low liquidity or small cap stocks
Thinly traded stocks often have:
- Fewer buyers and sellers
- Bigger gaps between price levels
- Wider spreads
A market order in these names can “walk” through several price levels and give you a poor average price. A limit order caps your risk.
2. Wide bid ask spreads
If you see a bid at 9.80 and an ask at 10.20, the spread is 0.40. A market buy could fill near 10.20 immediately.
With a limit order, you might place a buy at 10.00 and let the market come to you.
3. Pre market and after hours trading
Outside regular US market hours, spreads are often wider and volume lower. Limit orders help you avoid extreme prices in these sessions.
4. Volatile news events
Earnings, Fed announcements and major headlines can move prices in seconds. Using a limit order during these periods keeps you from chasing sudden spikes.
5. Larger order sizes
If your order size is meaningful relative to daily volume, a market order can push the price against you.
Breaking the trade into smaller limit orders can reduce impact.
Downsides Of Limit Orders
Limit orders are not perfect. There are trade offs.
1. No guarantee of execution
If the market does not reach your limit price, your order may never fill.
You risk “missing the move”.
2. Being too strict on price
Some investors always try to shave a few cents. If they place limits too far from the current price, they stay on the sidelines while the stock trends higher.
3. Partial fills
In thin markets, you might get only part of your order filled at the limit price, with the rest still pending.
The key is balance. Set realistic limit prices based on recent trading ranges, spreads and your time horizon.
Limit Order vs Market Order: Which Should You Use?
For most long term retail investors, a simple rule works well:
- Use limit orders as your default.
- Use market orders only when you truly need speed and the stock is highly liquid.
If you are building a position slowly in large cap US stocks and ETFs, limit orders help you stay disciplined and avoid bad fills.
Practical Tips For Using Limit Orders
1. Look at the current spread and depth
Check the bid ask spread and recent trades.
Set your limit close enough to the current price that it has a realistic chance of filling.
2. Use “day” or “good till canceled” thoughtfully
A day order expires at the end of the session if it does not fill.
Good till canceled can sit in the book for longer, which can be handy if you want to wait for your price.
3. Combine with a plan
Know why you picked that price. Maybe it is a recent support level, an attractive valuation, or a place where you are happy to take profit.
4. Stay flexible
If the story changes or the market moves far away, do not be afraid to adjust or cancel the order.
Conclusion
A limit order lets you say “I want this stock, but only at my price or better.” You trade execution certainty for price control, which is often a smart trade for retail investors.
Limit orders are especially useful in low liquidity stocks, wide spreads, volatile sessions and outside regular market hours. They help you avoid nasty surprises and keep your entries and exits aligned with your plan.
Apps like Gotrade let you place limit orders on US stocks and ETFs starting from small amounts, so you can build positions at prices you are comfortable with instead of chasing the market.
FAQ
- Is a limit order always better than a market order?
Not always. Limit orders give price control but may not fill. - How long should I leave a limit order open?
It depends on your plan. Many investors use day orders. If you use good till canceled, review your orders regularly. - What happens if the price touches my limit but I do not get filled?
It can happen if there were other orders ahead of you in the queue or if the traded volume at that price was small.
Reference:
- Investopedia, What Is a Limit Order in Trading, and How Does It Work?, 2026.
- Investor.gov, Limit Orders, 2026.
Disclaimer:
Gotrade is the trading name of Gotrade Securities Inc., which is registered with and supervised by the Labuan Financial Services Authority (LFSA). This content is for educational purposes only and does not constitute financial advice. Always do your own research (DYOR) before investing.
