What's a limit order and how does it work?
Limit orders give you more control than market orders over the price you buy and sell shares for and are usually used to buy or sell shares at a better price than they're currently trading at. You enter the exact number of shares you want and the price you want to buy or sell them for.
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If the market price matches yours (or is better!), your order will be completed. If it doesn’t reach your set price, the order will be automatically cancelled on its expiry date, and you won't be charged a brokerage fee.
If for any reason your order is partially completed (e.g. you place an order for 100 shares but there are only 50 available at your price), then you will be charged a brokerage fee. Partial order completions are less common on the US share markets because of the size and number of trades going through them, but happen more often when trading on the NZX or ASX.
Limit buy orders
Buying shares using a limit order lets you set a price you want to buy the share at. If the price reaches this or lower, the order will be filled. If it doesn’t reach your set price, the order will be automatically cancelled on its expiry date.
For example:
You want to purchase Tesla shares but they're $231.95. You want to buy these shares, but only if they reach $229.
You can use the limit buy order to attempt to buy your shares at $229. If the price for Tesla reaches $229 or lower before the order expires, it will be filled.
Limit sell orders
Selling shares using limit orders lets you sell your shares at a price that you're happy with. If the price reaches this or higher, the order will be filled. If it doesn’t reach your set price, the order will be automatically cancelled on its expiry date.
For example:
You've got 10 Amazon shares that you paid $1820 for. You want to sell, but they're trading at $1871.15 and you think they might go higher.
You can set a limit sell order to sell your shares at $1874.43. If Amazon prices reach $1874.43 or higher before your order expires, they'll automatically sell.
What you should know about limit orders
You can only buy and sell full shares (place a market order for fractional shares)
Limit orders are automatically cancelled on the expiry date you choose when you place the order
The full amount of your order is immediately deducted from your available balance until it's completed, you cancel it, or it expires
Your order won't be filled if the market price doesn't reach your desired price. If your order expires without completing, you won't be charged any brokerage fees, and you'll get an email letting you know
A limit order tells the market that you are willing to pay the price you entered right now for shares, even if it's a worse deal than the current market price.
For example, if you placed a limit order to sell shares at a lower price than the current market price, your order will be immediately be completed at the current market price:
Company X has a current share price of $100
You place a limit order to sell your shares for $99
Your limit sell order tells the market you are willing to sell your shares for $99, even though people are willing to pay $100 for them
Your shares will immediately be sold at the current market price. If you'd placed a stop-loss order instead, your order wouldn't be completed unless the market share price dropped from $100 to $99.
💡 Note: The share markets have protections in place to automatically cancel your limit order if it looks like it was clearly placed by mistake.