Definition

A limit order is a trading instruction that sets the maximum price you're willing to pay when buying, or the minimum price you'll accept when selling. Unlike market orders that execute immediately at current prices, limit orders only trigger when your specified price is reached.

Analogy

Imagine you're at an auction, but instead of bidding endlessly, you write down the maximum amount you're willing to pay and hand it to the auctioneer. If the bidding stays at or below your price, you win. If it goes higher, you walk away without overspending. That's how a limit order works in the stock market.

Little-Known Fact

Here's something most traders don't know: You can place "hidden" or "iceberg" limit orders. Like an iceberg showing only its tip above water, these orders display only a small portion of your total order size to the market. This strategy helps prevent other traders from seeing your full trading intention and potentially using it against you. It's particularly useful when trading large volumes without wanting to influence market prices.

Quick Quiz

Play a "Price Prediction Game" with yourself: Choose a stock and write down your ideal purchase or sale price. Then set a limit order and see how close you get to your target. It’s a fun way to practice without obsessively watching the market.