Limit Orders
- 02:10
Limit Orders
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Glossary
Limit OrdersTranscript
A limit order specifies the volume and price at which a member of an exchange would like to execute a trade either for themselves or for their client. Taking the order book on the left hand side, if a limit order to buy 7,000 shares at 1-0-9 was entered to the exchange, the exchange will match as much of that order at the best price available from the order book. This means 2,500 shares would get matched at 1-0-7, since that order exists at the top of the sell side of the order book. If we keep going down the sell side of the order book the next unmatched order is for 3,000 shares at 1-0-9. This can also be matched off against the new order since the price for that buy order was 1-0-9. This element of the trade will match at 1-0-9. However, there remains an element of the initial trade which has not been matched. 2,500 matched at 1-0-7 and 3,000 matched at 1-0-9 but the initial trade was to buy 7,000 shares. There are no other sell orders at 1-0-9 or lower so the remaining 1,500 from the initial order, which has not yet been matched, will go onto the top of the buy side of the Order book, since it is now an unmatched order. The exchange will match limit orders as much as possible and any unmatched element will go onto the order book. Limit orders guarantee an execution price, that if a trade takes place, it will be at or better than the limit price. But limit orders provide no certainty that the whole trade will be executed, as was the case here, with 1,500 shares left unmatched.