What is a 'limit order' in trading?

A limit order is a type of trading order used by investors to buy or sell a security at a specific price or better. This means that for a buy limit order, the order will only be executed at the specified price or lower, while a sell limit order will only be executed at the specified price or higher. The key advantage of a limit order is that it provides more control over the price at which a trade is executed compared to market orders, which are fulfilled immediately at the current market price.

Limit orders are particularly useful in volatile markets, allowing traders to set entry or exit points that align with their investment strategies. Overall, they serve as a risk management tool, helping investors avoid unfavorable price movements.