A limit order is a trading instruction to buy or sell a security at a specific price or better, providing price control but not guaranteeing execution. Buy limit orders are placed below current market prices, while sell limit orders are placed above current prices. Limit orders remain active until filled, canceled, or expired, offering price protection for patient traders.

Limit orders help traders avoid paying excessive prices during volatile market conditions and can capture favorable price movements when markets move in predicted directions. However, limit orders may not execute if prices don’t reach specified levels, potentially causing missed opportunities. Understanding order types and market conditions helps optimize execution strategies and timing.

Real-world example: A trader places a buy limit order for Apple stock at $145 when it’s trading at $150, ensuring they won’t pay more than $145 per share but risking non-execution if the stock doesn’t decline to that level.