What is a Limit Order in Futures Trading?
A limit order is a basic order type which enters an order to buy or sell a futures contract at a specific price or better. While limit orders do not guarantee a fill, they do allow the trader to specify a price to prevent negative slippage. Unlike market orders where a trader simply chooses to buy or sell at the best price available, limit orders require a limit price to be entered.
Buy Limit Order vs Sell Limit Order
A buy limit order can only be executed at the limit price or lower, while a sell limit order can only be executed at the limit price or higher. Limit orders will only be filled if the market reaches the specified limit price and if there is enough volume at that particular price level.
Advantage of Limit Orders: Name Your Price
Using a limit order, you can name your price. Also known as resting orders, limit orders “rest” on the order book anticipating the price to reach them.
As a result, you are assured that the order will not buy or sell at a worse price than specified. In fact, sometimes limit orders fill at an even better price making for a nice surprise!
Disadvantage of Limit Orders: Your Order Will Fill… Maybe
While a limit order gives you control of the price where your order will potentially execute, it does not guarantee a fill. The limit order will only fill if the price reaches the price specified and enough supply or demand on the other side of the market exists.
In this sense, opportunities to enter or exit the market could be missed with limit orders.
Examples of Limit Orders
From the E-mini S&P 500 futures chart above, with the market currently trading at 2787.25, the limit order to buy 1 contract at 2736.50 would require the market to move down to 2736.50 or lower (better) to execute.
Conversely, the limit order to sell 1 contract at 2821.25 would require the market to move up to 2821.25 or higher (better) to execute.
Learn more about basic order types in this quick video overview:
The award-winning NinjaTrader platform supports both basic and advanced order types through our award-winning platform and futures brokerage. Get started with our free trading simulator to explore the market possibilities!
