Limit Order

A limit order is an order to buy or sell a stock at a specific or better price. A buy limit order would only get executed at the limit price or lower, and a sell limit order would only get executed at the limit price or higher. A limit order is appropriate if getting a specific price is more important than getting filled.

The benefit of limit order is that you can protect yourself from receiving a price that is worse than your targeted price. The risk is that your order may not get filled if the price of the security is no longer within range specified in your order.

Example

An investor wants to buy a stock ABC for no more than $70, which is currently trading at $75. The investor places a buy limit order to purchase a stock of ABC at $70. If the price of stock ABC drops to $70 or below then the order will be executed. If the price never drops to $70 or below then the order will not execute. There are risks involved in placing a limit order; if the stock drops to $71 and after that the stock climbs up to $100.  The investor may miss out on the opportunity given by the  $29 rally seen in the stock from $71.