On This Page
Key Takeaways
- A buy limit sets the highest accepted execution price; a sell limit sets the lowest.
- A marketable limit interacts with eligible opposite-side orders inside that boundary.
- The selected duration governs the unfilled balance.
- Venue priority determines how competing orders at the same price are matched.
- The worked 500-share buy costs $14,996, saving $4 against its $30 limit.
What is a limit order?
A limit order is an instruction to buy or sell a security at a specified price or better. A buy limit sets the highest price the trader will pay, and a sell limit sets the lowest price the trader will accept. The limit controls the execution boundary, while the order’s quantity, route and duration determine how it interacts with available liquidity.
Formula
Buy savings relative to limit = (limit price − average fill price) × executed shares- Average fill price is total execution value divided by executed shares.
- For a sell, use (average fill price − limit price) × executed shares.
- This calculation uses the order’s limit as the benchmark.
Limit order example: partial fills and average price
A trader submits a limit order to buy 500 shares at $30.00. The order fills 200 shares at $29.98 and 300 at $30.00.
- Fill value: (200 × $29.98) + (300 × $30.00) = $14,996.00
- Average fill: $14,996.00 / 500 = $29.992 per share
- Improvement from the $30.00 limit: $30.00 − $29.992 = $0.008 per share
The 500-share buy costs $14,996 and averages $29.992. That is $4 below buying the entire quantity at the $30 limit.
The buy requests 500 shares at a $30 limit. Two hundred fill at $29.98 for $5,996 and 300 fill at $30 for $9,000. Total execution value is $14,996 and average fill is $29.992.
Compared with buying all 500 at the limit, the order saves $4. That comparison uses the selected limit as its benchmark. Add the broker’s explicit fees to calculate the complete cash cost.
How limit orders execute: marketable limits and queue priority
A marketable limit crosses the current opposite quote. The matching process uses eligible prices inside the limit until the requested quantity completes or eligible liquidity is exhausted. The selected time-in-force controls the remainder.
Under a fixed price-time queue, a new 300-share bid behind 1,000 existing shares receives no fill when the next 700 shares execute against that queue. Three hundred earlier shares still stand ahead.
In a separate available-book example, 800 shares are offered at $20.03. A 300-share buy with a $20.05 limit can complete all 300 at $20.03. The limit sets a ceiling, while the requested quantity caps the number of shares purchased.
For a multi-leg options structure, the broker’s supported package order carries one net limit for the whole position. Test net prices in the options profit calculator first: it shows the structure’s breakeven and payoff at each one, and the worst price that still pays at your target becomes the net limit.
Limitations of limit orders
- Price the limit where the market can reach it. A limit order controls price, not execution, so an order the market never reaches does not fill. When the fill matters more than the last cent, price a buy limit at the offer or a sell limit at the bid.
- Reaching the limit price puts the order in line. Under price-time priority, earlier orders at the same price execute first: with 1,000 shares ahead of your 300, a 700-share execution leaves your entire order waiting.
- A partial fill leaves a balance. The time-in-force decides whether it keeps working or cancels, so check the completed quantity against the planned position.
- The $4 saving measures the fill against the trader’s own limit. Grade execution quality against the quote and the midpoint at entry as well.
Bottom line
A limit order fixes the worst price you will accept and leaves the fill to available liquidity. Use it when price matters more than certainty of execution, choose the time-in-force for any unfilled balance, and judge the result from the actual fills and fees.
Clear answers
Frequently Asked Questions
Sources and Further Reading
- SEC: Trade Execution
- Cboe: Titanium U.S. Equities BOE Specification
- Cboe: U.S. Equities Order Types and Routing
How entries are sourced, calculated and updated: editorial methodology.