Limit Order
Definition
A limit order is an instruction to buy or sell a security at a specified price or better — a buy limit will only execute at your price or lower, a sell limit will only execute at your price or higher, guaranteeing the price but not the fill.
Example
“The stock was at $22.40 and I wanted to buy the VWAP reclaim at $22.00 exactly. I put in a limit order at $22.00, it filled when price tapped that level, and the stock reversed immediately. Clean entry, no chasing.”
Detailed Explanation
The defining characteristic of a limit order is price certainty without fill certainty. You set the maximum you'll pay to buy (or minimum you'll accept to sell), and the order only executes if the market reaches that price. If the stock never trades at your limit, you don't get filled — which is fine if you have discipline about where you want to enter. The opposite is a market order, which guarantees a fill but at whatever price the market is willing to give you, which can be significantly worse in thin or fast-moving stocks.
For day traders, limit orders are especially important for entries in illiquid stocks where the bid-ask spread is wide and market orders can fill with significant slippage. If a stock is quoted at $5.00 bid / $5.40 ask and you place a market order to buy, you might fill at $5.40 — a full 40 cents of immediate slippage. A limit order at $5.10 either gets you a better fill or doesn't fill at all, which is preferable to taking a bad fill on a setup that's already not ideal. The 40-cent spread widens your break-even point significantly before the stock does anything in your favor.
Limit orders can also serve as entry triggers on breakouts — placing a buy limit slightly above resistance, or a sell limit slightly below support for short entries, so the order executes only if price reaches the level that confirms the setup. The risk is partial fills or no fills if the level is reached briefly and price reverses before your order gets executed. In highly liquid stocks with tight spreads, market orders at breakout points may actually be preferable to avoid missing the move entirely. Knowing when to use each type comes with experience and depends heavily on the liquidity and volatility of what you're trading.