What is a limit order in stock trading?

A limit order in stock trading is defined as an order to buy or sell a stock at a specific price or better. This means that when an investor places a limit order, they set a target price. For a buy limit order, the order will only be executed at the limit price or lower, ensuring that the investor does not pay more than they want. In contrast, for a sell limit order, the order will only be executed at the limit price or higher, allowing the seller to maximize potential profits.

Using a limit order provides more control over the transaction compared to other types of orders, such as market orders, which execute immediately at the best available price. This can be particularly advantageous in volatile markets where stock prices can fluctuate significantly. By using limit orders, investors can ensure they are buying or selling at their desired price points.