What Is a Limit Order?

A limit order is a price-specific instruction used in stock market trading, where execution occurs only when predefined price conditions are met. Unlike orders that prioritise immediate execution, a limit order focuses on price control by allowing the buyer or seller to specify the acceptable execution price.

Understanding what is a limit order helps explain how trades are structured, prioritised, and matched within electronic trading systems used by stock exchanges.

In the stock market, a limit order refers to an instruction placed through a trading platform to buy or sell a security at a specified price or at a more favourable price. The order is recorded in the exchange order book and remains pending until market conditions allow execution.

A buy limit order is placed below the prevailing market price, while a sell limit order is placed above it. Execution occurs only when counter-orders are available at the specified price level. If the market does not reach that price, the order remains unexecuted.

This order type is commonly used in environments where prices fluctuate frequently and execution priority is determined by both price and time.

The limit order meaning refers to an order that specifies the maximum price at which a buyer is willing to purchase a security or the minimum price at which a seller is willing to sell it.

For buyers, the limit price sets a ceiling beyond which the order will not execute. For sellers, it establishes a floor below which execution will not occur. Unlike market orders, limit orders do not guarantee execution and remain dependent on price availability within the market.

A limit order functions by entering the exchange’s order book at a predefined price. Orders are matched when compatible buy and sell prices are available.

• Buy limit orders execute when sell orders are available at the limit price or lower

• Sell limit orders execute when buy orders are available at the limit price or higher

• Orders are prioritised based on price first, followed by time of placement

If sufficient liquidity is not available at the specified price, the order may remain partially filled or unexecuted.

Limit orders can be categorised based on direction and validity conditions:

• Buy Limit Orders: Used to purchase securities at or below a specified price.

• Sell Limit Orders: Used to sell securities at or above a specified price.

• Day Limit Orders: Valid only for the trading day on which they are placed.

• Good-Till-Cancelled (GTC) Limit Orders: Remain active until executed or manually cancelled, subject to exchange rules.

• Immediate-or-Cancel (IOC) Limit Orders: Execute immediately at the limit price, with any unfilled portion cancelled.

Each type determines how long the order remains active and how execution is handled.

A sell limit order is an instruction to sell a security only when its market price reaches or exceeds a specified limit price. It sets a minimum selling price and prevents execution below that level.

For instance, if a share is trading at ₹500, a sell limit order placed at ₹520 will be executed only if the market price rises to ₹520 or higher. Until then, the order remains pending.

Sell limit orders are commonly used to define selling conditions in advance rather than reacting to market movements in real time.

Limit orders are typically observed in trading situations where price conditions take priority over immediate execution. Common scenarios include:

• Trading in volatile markets where prices change rapidly

• Entering or exiting positions at predefined price levels

• Securities with lower liquidity, where market orders may cause price impact

• Structured trading approaches that rely on specific price thresholds
   

Execution depends on whether market prices reach the specified level during the order’s validity period.

Limit orders have certain structural characteristics that distinguish them from other order types:

• Defined price parameters for execution

• Visibility within the exchange order book

• Contribution to market depth and liquidity

• Flexibility through different validity options
   

These characteristics reflect how limit orders function within organised trading systems.

Limit orders also involve certain limitations:

• Execution is not guaranteed

• Orders may remain partially filled

• Price movement away from the limit may prevent execution

• Monitoring may be required for long-pending orders
   

These limitations arise from the price-conditional nature of the order.

A limit order is a price-based trading instruction that executes only when specified price conditions are met. In the stock market, limit orders are used to manage execution prices and contribute to orderly price discovery. While they offer control over transaction prices, execution depends on market liquidity and movement. Understanding how limit orders operate provides clarity on how trades are placed, prioritised, and matched within exchange-based trading systems.

This content is for informational purposes only and should not be construed as investment advice. Bajaj Finserv Direct Limited shall not be liable or responsible for any investment decision taken based on this content.