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Term · Liquidity & Trading

Limit Order

Core
In briefWith a limit order, execution takes place at most at the set price (or better); it controls the price but does not guarantee execution. For small caps it is often standard, because market orders are risky given wide spreads and thin order books.

Definition

An order that is executed only at a specified price or better. It controls the price but does not guarantee execution.

How it is calculated

Formula. Buy limit: execution only at the limit or below; sell limit: at the limit or above.

Why it matters for small caps

In the small-cap segment the limit order is often standard, because market orders are risky given wide spreads and thin order books.

Common misreadings

  • It is understood as free protection; in fact, a limit order set too tightly can mean the position is not built at all.

In the process

→ Used in Step 6 – Portfolio & monitoring

Frequently asked

What is a limit order?
It is an order with a set maximum or minimum price. Execution takes place only at this limit or at a price more favourable to the investor.
How do you use a limit order?
A buy limit only takes effect up to the set price, a sell limit only above it. This protects you against unexpectedly poor prices, especially for illiquid stocks.
What is the drawback of a limit order?
It is mistaken for free protection, although a limit set too tightly can prevent execution. In that case the desired position does not come about at all.

Related terms

Market OrderStop-Limit OrderSlippage

Sources

Primary
Deutsche Börse – Xetra Ordertypen und -attribute
https://www.cashmarket.deutsche-boerse.com/cash-de/Handel/ordertypen
Methodology
Category: Liquidity & Trading · Order types & executionRelevance: CoreJurisdiction: International

Education only, not investment advice. Ranges and thresholds are didactic orientation values, not an official standard.