The term limit order refers to instructions sent to a broker to buy or sell securities at a specific price or better. Since a limit order is not a market order, there is no guarantee the transaction will occur.
Limit orders are typically used by investors to control the price paid, or received, when buying or selling securities such as stocks. Since the price specified in the limit order is oftentimes different than the prevailing market price, there is no guarantee the transaction will occur if the price of the security does not pass through the limit price.
Limit orders are oftentimes used in the context of buying or selling shares of stock. Generally, investors can place two types of these orders:
If the price of the security does not reach or pass through the limit order price, the purchase or sale of the security will not occur. For this reason, limit orders are oftentimes combined with instructions that specify their duration. For example, a limit order may also be a day order or Good-Til-Canceled (GTC).