Limit order
What is a limit order, and what does it guarantee and fail to guarantee in a wide-ranging market week?
In plain words
A limit order is an instruction to trade only at a chosen price or a better one. A buy limit executes at the stated price or lower; a sell limit at the stated price or higher. If the market never reaches that price, the order simply does not trade.
Why it matters
A limit order controls the price you pay or receive, but it gives up certainty that the trade happens at all. In a fast market, price can jump past a limit in a single hour, so the trade fills at a level you never saw, or does not fill while the market moves away without you.
In a real week: ETH, week of 29 November 2021
In the week of 29 November 2021, ETH opened at 4294.77, rose to a high of 4778.75 on Wednesday at 07:00 UTC, then fell to a low of 3503.68 on Saturday at 05:00 UTC, a range of 36.39%, closing at 4196.44 for a weekly return of -2.29%. A buy limit set inside that range, between the open and the low, would have seen price trade through it; a buy limit below 3503.68 would have gone unfilled all week. The largest single hour fell -4.28%, at the same hour as the low.
A common mistake
Assuring yourself that a limit order fixes the outcome. It fixes the price, not the execution; a volatile market can leave the order unfilled or trigger it in one fast hour.