What it means
A limit order specifies the worst price you'll accept. A buy limit at 1.0850 will fill at 1.0850 or lower; never higher. A sell limit at 1.0850 will fill at 1.0850 or higher; never lower. If the market never reaches your limit price, the order doesn't fill at all. Limit orders rest in the book until filled, cancelled, or expired.
Why it matters
Limit orders are the default execution type for any strategy that doesn't require instant entry. They control the largest hidden cost in FX trading (spread + slippage) by passively providing liquidity rather than aggressively taking it. Many ECN brokers rebate liquidity-providing limit orders, turning passive execution into a small positive expectancy edge.
How to use it
Set buy limits at or below the current bid; sell limits at or above the current ask. For mean-reversion strategies, place limits at the historical support/resistance levels. For breakout strategies, use stop orders instead (limit won't trigger above the current price by definition). For scaling in/out, ladder multiple limits at different price levels.
EUR/USD trading 1.0850. You think 1.0820 is a strong support. Place buy limit at 1.0820 with stop at 1.0805. If price drops to 1.0820 you're filled at 1.0820 (or slightly better if the market overshoots momentarily). If price rallies from 1.0850 without touching 1.0820, the order never fills.
Limit orders and the maker-taker model
ECN exchanges and FX ECNs use a maker-taker fee structure: takers (market orders, marketable limits) pay a fee per fill; makers (passive limit orders that rest in the book) receive a rebate. The rebate is small (typically $0.0005-0.002 per share or fraction of a pip in FX) but meaningful for active strategies. A scalper executing 1,000 trades/month with maker-fill discipline can earn rebate income equivalent to a 0.1-0.3 pip per round trip — material at typical strategy edges.
Why limit orders sometimes don't fill at the limit price
Limit orders fill at the limit price OR better. The 'better' clause is critical: if you have a buy limit at 1.0850 and the market gaps down to 1.0830, your order is at the top of the book at 1.0850 — and will fill at 1.0830 (better than your limit). In FX this happens around news releases; in equities around gaps. The fill is always favorable to you, but be aware that price-and-quantity are not contractually guaranteed in the way some retail traders assume.
Frequently asked
How long does a limit order stay open?
Depends on the time-in-force (TIF): DAY orders expire at session close; GTC orders rest indefinitely until filled or cancelled; GTD orders expire on a specified date. The default on most retail platforms is DAY.
Can a limit order partially fill?
Yes — if your size is larger than the available counterparty volume at your price, you may fill partially and have the remainder rest in the book. Each fill is a separate execution with its own timestamp and (potentially) commission charge.
Should I always use limit orders?
No — stops, exits during fast markets, and scenarios where execution certainty matters more than price all justify market orders or stop orders. But for entries on planned trades, limits should be the default.
Want a worked example or a deeper dive? Ask Rocky how this concept applies to your specific watchlist or trade idea.
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