Limit Order
The classic one
A limit order is one of the main order types, commonly used to buy or sell a financial asset at a specified price. It allows you to set the maximum price you are willing to pay when buying, or the minimum price you want to receive when selling. Learn more about this order type.Learn more about this order type.
What is a Limit Order?
A limit order is one of the main order types used to buy or sell a financial asset at a specified price. The order will only be executed if the market price reaches the designated limit price and execution depends on market conditions and available volume.
A limit order allows investors to specify the maximum price they are willing to pay when buying or the minimum price they are willing to accept when selling. This gives investors the ability to define target price levels for entering or exiting a position, which may be useful in volatile markets or when aiming for specific price points.
The downside of a limit order is that it may not be executed immediately or at all if the market price does not reach the specified level. Additionally, if there is insufficient trading volume at the limit price, the order may be only partially filled.
Key Features
Price Control
A limit order allows you to specify the maximum price at which you are willing to buy or the minimum price at which you are willing to sell a security. This provides investors with control over the price level at which a transaction may occur, helping to reduce exposure to unfavorable price movements. However, execution is dependent on market conditions.
Non-Execution Potential
There is a risk that a limit order will not be executed if the market does not reach your specified limit price. This means the order may remain open and unfilled, particularly in fast-moving or illiquid markets. In addition, if there is insufficient trading volume at your limit price, the order may be partially filled. These limitations require careful consideration of price limits, market conditions, and order duration when placing limit orders.
How does a Limit Order work?
A Limit Order works by allowing you to specify the exact price at which you want to buy or sell an asset. The order may only be executed if the market reaches your specified price depending on market conditions and available liquidity.
Buy Order
You specify the maximum price you are willing to pay. The order may be executed at your specified limit price or lower, depending on available volume in the market.
Sell Order
You specify the minimum price you are willing to accept. The order may be executed at your specified limit price or higher, if the market reaches or exceeds that level.
Limit orders can be helpful in several scenarios, such as when a stock is experiencing rapid price fluctuations and a trader wants to avoid an unfavorable fill that might occur with a market order. They may also be useful if a trader is not actively monitoring a stock but has a specific target price at which they are willing to buy or sell.
Example (Buy Order):
Imagine you’re interested in buying 100 shares of ABC. Currently, ABC shares are trading around 30 EUR per share, but based on your target price analysis, you want to buy them only if the price drops to 28 EUR or lower.
To follow this strategy, you place a limit buy order for 100 shares of ABC at a limit price of 28 EUR per share. This means your order may be executed if the market price falls to 28 EUR or below, depending on market conditions and available volume.
If the market price does not reach 28 EUR, your order will remain active until it either meets your specified price, expires (based on your Time in Force selection), or is canceled.
If the price drops to 28 EUR but only 50 shares are available at that price, those 50 shares will be purchased, and the remaining 50 shares will remain open in the order book until the price conditions are met or the order expires or is canceled.
Example (Sell Order):
You would like to submit an order to sell 300 shares of XYZ at no less than 24 EUR. Instead of immediately selling at the current market price, you decide to place a limit order because you expect the value of XYZ shares might increase based on your market analysis.
Currently, XYZ shares are trading around 20 EUR per share, but you want to sell them only if the price reaches 24 EUR per share or higher. To achieve this, you place a limit sell order for 300 shares of XYZ at a limit price of 24 EUR per share. This means your order may only be executed if the market price of XYZ shares reaches or exceeds 24 EUR.
If the market price does not reach 24 EUR, your order will remain open until it either reaches your specified price, expires, or you cancel the order. If the price rises to 24 EUR but only 200 shares are available, those 200 shares will be sold, and the remaining 100 shares will remain active until the price conditions are met or the order is canceled.
Advantages and disadvantages
Advantages
Disadvantages
- Price Control:
You can specify the exact price at which you are willing to buy or sell a security. This helps prevent buying at a higher price or selling at a lower price than intended.
- Potential Non-Execution:
If the market price does not reach your limit, the order remains unfilled. This means you may miss out on trading opportunities if the market moves away from your desired price.
- Avoiding Slippage:
Slippage occurs when the market price changes unfavorably between order placement and execution. Limit orders help reduce this risk by executing only at your specified limit price or better.
- Risk of Partial Fills:
Depending on liquidity and order size, your order may only be partially filled at your specified price.
- Suitability for Volatile Markets:
Limit orders are particularly useful in volatile markets where prices can fluctuate rapidly. They provide protection against sudden price movements.
- Timing Risk:
There is a risk that the market may move quickly, and your limit order might not be fully executed if the price only briefly touches your limit but then moves away before your order can be completely filled.
Submitting a Limit Order via LYNX
In LYNX+, you can find specific securities using the search bar located in the top right corner. You can search by the name, ISIN code, or specific ticker of the product.
Once you have selected the product you want to trade, you will be taken to the product overview. Here, in the top right corner, you can click on Buy or Sell if you wish to initiate a trade in this stock. Specify the Quantity and select Time in Force for your order.
Select LMT from the Order Type dropdown menu. Enter your limit price.
After customizing the order ticket to your preferences, you can review the order details in the Summary.
To proceed, click Send Order to submit or Cancel to discard the order.
After logging in to the TWS, open the order ticket by clicking Order in the top left. If you have a specific security selected, it will automatically open an order ticket for that security. You can change the underlying security by typing the name, ticker code, or ISIN in the Financial Instrument column at the top of the order ticket.
Next, choose the action (buy or sell), specify the Quantity, the destination, and select the Time in Force for your order.
Select LMT from the Order Type dropdown menu. Define the limit price for your order in the field below.
In the bottom left of the order ticket window, you can press Preview to view the summary of your order. Then click on Transmit to submit the order or on Close to close the preview.
To search for a product, tap the Search icon in the top right. Enter the name, ISIN, or ticker symbol. Tap a search result to open the product’s page.
By clicking on Sell or Buy, you will access the order ticket.
Specify the Quantity and set the validity period of your order under Time in Force.
Select LMT as an order type and specify the limit price.
Before submitting the order, you can check the parameters of your order via the Preview/Calculator icon on the bottom right. To submit the order, swipe right over the Slide To Submit Sell/Buy button.
Tips before submitting a Limit Order
When placing a limit order, there are several factors that may influence whether and how the order is executed. Considering these aspects can help in understanding the potential outcomes of the order.
Price Setting
The effectiveness of a limit order depends on how the limit price relates to current market conditions.
If the specified limit price is set significantly away from the prevailing market price, the order may remain unfilled.
Limit orders provide price control, but they may also remain inactive if the market does not reach the chosen limit price.
Timing
Limit orders are generally executed most efficiently during regular trading hours, when market liquidity tends to be higher.
During periods of elevated volatility, such as around major news releases, prices may change rapidly and orders may remain unfilled.
There is also the potential for market gaps between trading sessions, which can affect whether and how an order is executed.
Order Duration
The duration of a limit order defines how long it remains valid.
You can select from options like “Day” orders, which expire at the end of the trading day, or “Good-Til-Cancelled” (GTC) orders, which generally remain active until executed or cancelled.
The selected order duration determines whether an order expires at the end of the day or may continue beyond a single trading session, subject to the applicable rules of the trading venue and broker.
FAQ
Can I cancel or modify a limit order?
Yes, Limit orders can generally be cancelled or modified if they have not yet been executed.
Please note that modifying a partially filled limit order will cause the system to treat it as a new order, and commission fees will be deducted again.
What is the difference between a limit order and a market order?
A market order is typically executed quickly at the best available price in the order book, prioritising speed of execution over price control. In contrast, a limit order is only executed at the specified price or at a better price, prioritising price control over execution speed.
When can a limit order be considered?
A limit order may be appropriate in situations such as:
- when the objective is to control the price at which a financial instrument is bought or sold,
- when there is flexibility to wait until the market reaches the specified limit price before execution,
- when avoiding execution above or below a certain price level is a priority.
What happens if the market price never reaches my limit price?
If the market does not reach the specified limit price, the limit order remains unfilled within the designated Time in Force setting, such as until the end of the trading day (DAY) or as Good-Til-Cancelled (GTC). If the market does not meet this condition within the chosen time frame, the order will expire in accordance with the selected Time in Force.
What is a partial fill in a limit order, and how is it handled?
A partial fill occurs when only a portion of a limit order is executed at the specified price. The remaining portion of the order will remain active according to the selected Time in Force setting, until it is fully executed or cancelled.
What if my LMT order is not entirely filled at the end of the trading day?
If your limit (LMT) order is not completely filled by the end of the trading day, the handling of the unfilled portion depends on the Time in Force selected.
If the order with GTC selected as Time in Force isn’t entirely filled by the end of the trading day, it will be automatically carried forward to the next trading day until it is executed or cancelled. Any applicable commission fees may be recalculated for the carried-forward order.
Modifying a partially filled order will also cause the system to treat it as a new order, and commission fees may be recalculated accordingly.
Explore other order types
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Stop Limit Order
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A stop-limit order is triggered once a specified stop price is reached. After activation, it becomes a limit order at the user-defined limit price.
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A trail limit order adjusts the stop price by a fixed amount or percentage as the market moves. Once the stop price is reached, a limit order is placed at the predefined limit level.
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Market if Touched Order
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Limit if Touched Order
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A Limit If Touched order is activated when the market reaches a predefined trigger price. Once triggered, it becomes a limit order at the user-specified price.
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Bracket Order
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A Bracket Order combines three orders: an initial buy or sell order, a take-profit order, and a stop-loss order. Once the initial order is executed, the system automatically places the two opposite orders to manage risk and potential profit.
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