Definition

• According to the Securities and Exchange Commission, a limit order is an order to buy or sell a security at a specific price. A buy limit order is executed at the limit price or lower.
  
  

Flexibility

• Buy limit orders are placed as either day orders (today only) or GTC orders (Good Till Canceled by the trader).
  
  

Example

• Stock "A" trades at $100 per share. The investor instructs his broker to set a buy limit of 100 shares at $80 per share GTC. No action is taken unless stock "A" drops in price to $80 per share or better. At that point the broker initiates the trade at the predetermined price and volume.
  
  

Considerations

• The SEC states that limit orders are not always executed because the market price can quickly surpass the traders limit price before the transaction is executed.
  
  

Benefits

• Limit orders are especially beneficial when trading highly volatile stocks and stocks with very low trading volumes.