What Is a Limit Order? Definition & Example

A limit order specifies the worst price you will accept. Set a limit buy at $100 and you will fill at $100 or lower, never higher. If the market never reaches your price, the order simply sits in the order book unfilled.

This is the central trade-off against a market order: you control price but not execution. A market order controls execution but not price. Neither is better in the abstract — it depends entirely on whether certainty of fill or certainty of price matters more for the trade in front of you.

Limit orders carry a concrete financial advantage. Because they rest in the book and wait, they provide liquidity, which makes you the maker in the transaction. Maker fees are consistently lower than taker fees and on some venues are a rebate — you get paid rather than charged. Across an active trading year the difference between filling as maker versus taker can exceed the strategy's entire edge.

The costs are equally concrete. Your order may never fill, and an unfilled entry on a trade that then works is a real opportunity cost. Chasing a missed fill by moving the limit up repeatedly usually ends up costing more than the fee you were trying to save. And in a fast market a resting limit order can be picked off — filled precisely because the market moved through your price on its way somewhere worse.

Practical use: limit orders suit planned entries, scaling into a position at predetermined levels, and any situation where you are patient. Use a market order when getting out matters more than getting out at a good price.