It sounds like this“If I put in a limit order to buy at 101, I will pay 101 a share.”
Thinking a limit order fills at your limit
Why it feels right
The words 'limit price' sound like the price you are setting. If you say 101, it feels like you are agreeing to pay 101, and so a high limit looks like a careless way of overpaying, so people are nervous of setting it above the quote.
Why it’s wrong
A limit order is a ceiling, not a price. If the ask is 100.10, your order buys at 100.10, the best price on offer, even though you said 101. Your limit only matters if the market moves above it.
A worked example
Orders meet in a list called the order book. Sellers are lined up asking 100.10, 100.15, 100.20, and so on. A buy order with a limit of 101 arrives and looks for the cheapest seller first. It trades with the one asking 100.10, then takes the next if it wants more shares.
So a buy for 50 shares with a limit of 101 against 100.10 on offer costs 50 x 100.10 = 5,005, not 50 x 101 = 5,050. You pay the sellers' prices, up to your ceiling.
The limit is a safety setting. It says 'never pay more than 101 whatever happens', so if the price jumps to 103 while the order is on its way, it does not trade. Setting the limit a few cents above the ask is a common way to buy at once without leaving the price to chance.
How to catch yourself
- You avoid a limit above the current ask because you think you'd pay it.
- You think the exchange takes your limit as the deal price.
- You don't know why a buy order can fill below its limit.
What to hold instead
A limit order is a ceiling. It trades with the best prices available, at or below your limit when buying, and only waits if the market is beyond it. You can pay less than your limit, never more.
Where you’ll meet it
- Buying a stock quickly but safely.
- Reading a trade confirmation that shows a lower price than your limit.
- Understanding how an order book matches orders.
Questions people ask
- Do I pay my limit price?
- Not necessarily. Your limit is the worst price you will accept. If better prices are available, you get those: a buy with a limit of 101 against an ask of 100.10 fills at 100.10.
- What is an order book?
- The list of waiting buy and sell orders at each price. Orders match against the best price on the other side first, so a new order trades with the cheapest sellers or the highest bidders it can reach.