Limit order

A limit order puts a ceiling on what you will pay or a floor under what you will accept. The workbook defines it as an order to buy or sell a contract at a specified price. The user must state this limit price when placing the order, and the order is executed only at the limit price or at a better price — lower in the case of a buy order, higher in the case of a sell order.

So a limit order trades control of price against certainty of execution. If the market never reaches your price, nothing happens: the order waits in the book, and if it carries a day condition it is cancelled at the end of the day.

Price condition. Limit and market orders are the two price conditions in the trading system; day and IOC orders are time conditions, and combinations are allowed.

Waiting in the book. Every order is time stamped and processed for a potential match. If no match is found it is stored in the order book in price-time priority — best price first, then by time within a price. A buy limit below the best ask, or a sell limit above the best bid, therefore rests in the book until an opposite order meets it.

Better prices are kept. A buy limit priced above the best ask is not filled at its limit; it matches the resting sell orders at their own, lower prices, up to the limit.

Avoiding spread cost. Chapter 6, section 6.5, contrasts buyers "who place orders to buy at the market price instead of placing limit orders", who end up paying higher prices. The limit order is the way to avoid paying through the spread — at the risk of not trading.

Inside a stop-loss order. In the workbook's stop-loss illustration, a trader who bought ABC at Rs 100 places a limit sell order with a trigger price of Rs 95 and a limit price of Rs 92. When the market breaches Rs 95, the order converts to a limit sell at Rs 92. The trigger price must lie between the last traded price and the limit price.

The workbook's options order book (Chapter 6, section 6.5):

Buy limit 5,700 at Rs 16.70 (illustrative). Nothing is offered at 16.70 or below, so the order rests in the book as the new best bid. It trades only if a seller comes down to 16.70.

Buy limit 5,700 at Rs 16.90 (illustrative). It can take any offer up to 16.90, best price first:

2,850 at 16.80 = Rs 47,880.00
2,850 at 16.85 = Rs 48,022.50
Total          = Rs 95,902.50  → average 95,902.50 ÷ 5,700 = Rs 16.825

The order was filled at an average below its limit — "at the limit price or a better price".

The workbook's Chapter 6 sample question. A trader bought 100 XYZ at Rs 780 and does not want to lose more than Rs 1,000, i.e. Rs 10 a share. A limit sell at Rs 770 would not protect him — with XYZ trading around Rs 780, a sell limit at 770 is immediately matchable at the better prevailing bid, so it would simply sell his shares now. What he needs is an order that stays out of the market until the price falls to Rs 770: a stop-loss sell order at Rs 770.

Chapter 6, section 6.1, defines the limit order under price conditions and uses a limit price inside the stop-loss illustration; section 6.5 contrasts limit and market orders in explaining the bid-ask spread and impact cost; the chapter's sample question tests limit versus stop-loss orders. Expect the direction of "better" (lower for buys, higher for sells) and the limit/stop-loss distinction.

• "At the limit price or better" — better means lower for a buy, higher for a sell.
• A limit order is not guaranteed to execute. Price control is bought with execution risk.
• A sell limit below the market price executes at once; it is not a protective order. Protection needs a stop-loss order.
• In a stop-loss limit order, the trigger price must be between the last traded price and the limit price.
• Limit and market orders are price conditions; the order's life (day, IOC) is a separate time condition.
• A limit order that crosses the spread still gets the resting orders' better prices, not its own limit.