What is a limit order?

Definition

A limit order gives the trader price control but does not guarantee execution. It can rest in the order book until another participant accepts its price, the trader cancels it or the market expires.

Automated strategies often place early resting orders to seek favorable prices. Reported performance must account for whether those orders actually fill, because a theoretical price provides no profit when no trade occurs.

ELI5

A limit order tells a market the worst price a trader is willing to accept. The order waits instead of immediately taking any available price.

For example, a bot can place an early low-priced order in a weather market and wait for someone to sell into it. The price may be attractive, but the order earns nothing if it never fills.

Frequently asked questions

Does a limit order guarantee a trade?

No. It guarantees a price boundary, but the market may never reach that price or provide enough matching volume.

Why do automated strategies use resting limit orders?

They can seek better prices and avoid immediately crossing the spread, although execution becomes uncertain.

Videos explaining limit order