A limit order is an order to buy or sell the market, up to a maximum or down to a minimum price specified.
When a trader places a limit order, the order is placed in the ‘Limit Order Book‘ where generally, there will be other limit orders already queuing. The position in the order queue can have an impact on the ability of traders to have their limit orders filled at the price they have designated.
Limit orders can only be filled when:
• The market price is equal to or better than the specified limit order price
• All of the other orders that are ahead of the trader in the order queue have been successfully executed
• Additional market orders are able to be executed against the limit order
While limit orders are often used for trade entries and targets, how limit orders are used greatly depends on the trader, their motivation and their trading strategy.
See also Order Book and Queue (Order Queue).