A limit order is an instruction to buy or sell at a specified price or better. A buy limit sits below the current market price, a sell limit above it. The price is controlled, but execution is not: the order fills only if the market reaches the level and liquidity is available there.
Why buy limits sit below the market
The direction relative to the current price is what defines the order family. A buy limit is an offer to pay no more than the stated price, so it only makes sense below the market — the trader is waiting for a cheaper price. A sell limit is an offer to receive no less than the stated price, so it sits above the market.
Placing the same numbers the other way round produces a different instrument. A buy instruction above the market is a buy stop: it activates when the price rises to the level and then takes whatever price is available. A sell instruction below the market is a sell stop. Same two levels, opposite logic — the limit waits for a better price, the stop reacts to a worse one.
What "or better" means in practice
"Or better" is asymmetric and always in the client's direction. A buy limit at 1.0820 on EUR/USD fills at 1.0820 or lower; it will never fill at 1.0821. If the market opens below the level after a gap, the fill can be at 1.0805 — better than requested.
Execution still depends on volume at the level. If the price touches 1.0820 and only part of the requested size trades there, the order can fill partially and the remainder stays working. If the price touches the level and reverses immediately, the order may not fill at all, and the intended entry or exit does not happen. That outcome is a normal property of the order type, and applies equally when the level is being used to close a position at a loss.
Order life is set separately: a day order is cancelled at the end of the trading day, a good-till-cancelled (GTC) order remains in the book until it fills or the client removes it.
Price certainty versus execution certainty
| Limit order | Market order | |
|---|---|---|
| Price | Fixed at the limit or better | Not fixed — the next available price |
| Execution | Not certain; may not fill | Fills while the market is open |
| Typical use | Entering or exiting at a chosen level | Acting immediately at any price |
| Main risk | The level is missed and nothing happens | The fill price differs from the one seen |
Neither column is superior; they trade one certainty for the other. Protective exits, where missing a fill has consequences for an open position, are covered in the lesson Stop-loss order.
