A limit order is a type of order used in trading where an investor specifies the exact price and quantity at which they want to buy or sell a security. Unlike market orders (which execute immediately at the current market price), limit orders only execute when the asset reaches the predetermined price.
How Limit Orders Work
For example:
- Current Share Price: ₹100 per share.
- Investor’s Desired Price: ₹95 per share.
- Order Placed: Buy 10 shares at ₹95.
The order executes only if the market price drops to ₹95. Otherwise, it remains pending or expires unfilled.
Key Features of Limit Orders
1. Execution Timing
- Limit orders expire if unfilled by the end of the trading session (same day). Brokers typically cancel unexecuted orders after market close.
- Some brokers support after-hours limit orders, but these also expire if unexecuted in the next session.
2. No Guaranteed Execution
Even if the market hits your limit price, execution isn’t guaranteed due to:
- Order Priority: First-come, first-served (earlier orders get filled first).
- Liquidity Mismatch: Sellers/buyers may not exist at your specified price.
Example Scenario:
Buy Orders (Cumulative Demand: 50 Shares)
| Time | Investor | Price (₹) | Quantity |
|-------|----------|-----------|----------|
| 9:30 AM | A | 95 | 10 |
| 10:30 AM| B | 95 | 20 |
| 11:00 AM| C | 95 | 5 |
| 11:30 AM| D | 95 | 15 |
Sell Orders (Available: 30 Shares)
| Time | Investor | Price (₹) | Quantity |
|-------|----------|-----------|----------|
| 9:15 AM | E | 95 | 20 |
| 9:50 AM | F | 95 | 5 |
| 10:13 AM| G | 95 | 5 |
Result: Investors A and B get shares (30 total). Orders C and D are canceled due to insufficient supply.
Trading Sessions Explained
A trading session refers to one full market day (e.g., 9:15 AM–3:30 PM in India). Key points:
- Markets operate weekdays only (excluding SEBI-declared holidays).
- Weekend trading is rare and announced in advance.
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When to Use Limit Orders
Limit orders excel in volatile markets, where prices fluctuate rapidly. Benefits include:
- Price Control: Avoid overpaying (or underselling).
- Risk Reduction: Prevent slippage in fast-moving markets.
FAQ
Q1: Can I modify a limit order after placing it?
A1: Yes, most brokers allow modifications or cancellations before execution.
Q2: Do limit orders work for all securities?
A2: Yes, including stocks, ETFs, and cryptocurrencies.
Q3: What’s the difference between a buy limit and a sell limit?
A3: Buy limits set a maximum purchase price; sell limits set a minimum sale price.
Q4: How long do limit orders last?
A4: Typically one session unless you specify a longer duration (e.g., "Good-Til-Canceled").
Q5: Are limit orders free?
A5: Broker fees vary—check your platform’s pricing.
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Final Thoughts
Limit orders empower traders with precision, especially in erratic markets. By setting clear price targets, you mitigate emotional decisions and optimize entry/exit points. Always confirm your broker’s order policies and market hours to maximize effectiveness.
Happy Trading!
### Keywords:
- Limit order
- Trading session
- Stock market
- Order execution
- Volatility
- Buy/sell orders
- Market hours
- SEBI