A limit order is a type of order to buy or sell a security at a specified price or better. In a buy limit order, the trade will only execute at the limit price or lower, while a sell limit order will execute at the limit price or higher. This mechanism allows traders to have more control over the price at which they enter or exit a position, as it helps mitigate the risks associated with market price fluctuations.
Limit orders are especially useful in volatile markets, where prices can change rapidly. However, while they ensure a trader will not pay more (in the case of a buy) or receive less (in the case of a sell) than the specified price, there is no guarantee that the order will be executed if the market does not reach the limit price.