What is a Limit Order?

Imagine you’re at the market. You want to buy tomatoes, but you only want to pay ₹30 per kg. You tell the vendor, “I’ll buy only if the price is ₹30 or less.” If the tomatoes are priced higher, you won’t buy. If the price is ₹30 or lower, you’ll buy them. This is the same idea behind a Limit Order in the stock market. So here we will understand the concept of a limit order.

What is a Limit Order?

A Limit Order is an instruction you give to your broker to buy or sell a stock at a specific price or better. Simply put, it means that you are willing to buy a stock, but only if the price falls to a certain level, or you are willing to sell a stock, but only if the price rises to a certain level.

In simple words, A Limit Order is like saying, “I will only buy or sell something if the price is what I want, or better.” In the stock market, it’s a way to buy or sell a stock at a price you choose, not at the current market price. Let’s take an Example:

Limit Buy Order: You want to buy shares of Tata Motors, but only if the price drops to ₹530. You set your order at ₹530. If the price falls to ₹530 or below, your order will be filled. If the price doesn't reach ₹530, nothing happens.
Limit Sell Order: You already own Tata Motors shares, and you want to sell them, but only if the price goes up to ₹580. You set your order at ₹580. If the price reaches ₹580 or higher, your order will be filled. If not, your shares stay with you.

Real-Life Example of a Limit Order

Let’s say Reliance shares are priced at ₹2,500 today. You think the price will drop soon, so you place a limit buy order at ₹2,450. This means you are saying:

“I will only buy Reliance shares if the price falls to ₹2,450 or below.”
If the stock price doesn’t fall to ₹2,450, you won’t buy it. Your order will just stay there, waiting.

If the stock price drops to ₹2,450 or lower, your order will automatically be filled, and you will get the shares at your desired price.

How Does a Limit Order Work?

Here’s how it works:

Choose Your Price: You decide at which price you want to buy or sell. This is your "limit price."
Place the Order: You enter this limit price with your broker or through your stock market app.
Wait for the Price to Hit Your Limit: Your order will stay open. It will only be executed if the stock reaches your limit price.
Order Gets Filled: If the stock price reaches your price, the order gets executed. If not, it stays pending until the market closes or you cancel it.

For example, let’s say you want to buy HDFC Bank shares at ₹1,400, but the stock is trading at ₹1,450. You place a limit buy order at ₹1,400. If the stock price goes down to ₹1,400 or below, your order will be filled, and you’ll get the shares. If it stays above ₹1,400, nothing happens.

Things to Note About Placing a Limit Order

Before placing a Limit Order, here are a few things to keep in mind:

Price is Important: You must decide the price you are comfortable with. If your price is too low compared to the market, your order may never be filled.
Partial Fill: Sometimes, there might not be enough sellers or buyers at your price. In this case, you might only get part of the order filled. For example, if you want to buy 100 shares but only 50 shares are available at your price, you’ll get 50 shares, and the other 50 will stay open.
Expiry: Your Limit Order stays open until it is either filled or canceled. You can choose to make it Good Till Cancelled (GTC), meaning it will stay open until you cancel it, or you can set it to expire at the end of the day.
No Guarantee: Just because you place a limit order doesn’t mean it will be filled. If the stock price never reaches your limit price, you won’t get the stock.

Difference Between Limit Order vs Market Order

Let’s compare Limit Orders with Market Orders:

Feature	Limit Order	Market Order
Price Control	You control the price at which you buy/sell.	You don’t control the price. It’s executed at the best available price.
Execution Speed	It might take time to be filled if the price isn’t met.	Executes immediately at the best available price.
Risk of Overpaying	You won’t overpay because you set a price.	You might pay more or sell for less because the price can change quickly.
Example	You want to buy Infosys shares at ₹1,200, but the market price is ₹1,250. You place a limit buy order at ₹1,200. Your order will only be filled if the price drops to ₹1,200 or below.	You want to buy Infosys shares right now, no matter the price. So, you place a market order, and it gets executed at the current market price of ₹1,250 or whatever price is available at the moment.
Uses	You want to buy or sell at a specific price. You’re okay with waiting for the market to come to your price. You don’t want to overpay or sell for less.	You want the order to be filled immediately. You don’t mind buying or selling at whatever price is available right now.

Conclusion

In conclusion, a Limit Order is a smart way to buy or sell stocks at a price you choose. It’s like saying, “I want to buy at ₹530, not a penny more.” It gives you control, but you might have to wait. We hope this blog has been helpful to you.

About the Author

Saniya

I'm a finance content writer with a BBA in FinTech, passionate about simplifying money matters for everyday Indians. I break down complex topics like investments, savings, and digital finance into easy, relatable content. My goal is to help you in a way that’s easy to understand, jargon-free, and actually useful in real life.

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