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2012issue C0372

Limit orders when a tick saved costs the fill

A limit may fill only at the named price or better. The archive treats that bound as useful when the bid-ask spread would tax the trade, and as a poor bargain when a one-tick concession misses the intended exposure.

  • A limit order may execute only at the trader-named price or a more favorable price. Better-than-limit fills are described as uncommon, while the named price still sets the or-better bound.
  • Limits are presented as most useful when the intended buy sits well below, or the intended sell well above, the prevailing price, including distant profit targets and unattended futures sessions.
  • In liquid markets, using a limit to capture a single tick is described as inefficient relative to obtaining the intended exposure. Missing a fill to save an illustrative $12.50 tick is given as the typical cost of an overly tight limit.
  • In thinner futures books and in option books with bid-ask gaps of hundreds of dollars, a resting or mid-spread limit is described as necessary so the spread paid does not become the transaction cost.
Entries in this reading3 entries
Current trackLimit order51 readingsCommission analysis83 readingsStop-loss order297 readings

A limit order is an instruction that may fill only at a named price or a more favorable price. Fills better than the named limit are described as uncommon. The named price still supplies the or-better bound: the order will not fill worse than that price.

When a resting limit is treated as useful

Limits are presented as most useful when the intended buy is well below, or the intended sell well above, the prevailing price. That use includes distant profit targets and unattended moves while futures trade nearly around the clock.

When a single tick is a poor bargain

For most participants in liquid markets, using a limit to capture a single tick on entry or exit is described as inefficient relative to obtaining the intended exposure. Missing a fill while trying to save an illustrative $12.50 tick is given as a typical cost of an overly tight limit.

Wide books and option working prices

In thinner futures books such as lumber and rough rice, limits are described as necessary to mitigate wide bid-ask spreads. The bid-ask spread is the gap between the best bid and best offer, and it becomes a cost if the order crosses the book.

Option working prices are described as needing a mid-spread limit because some option books show bid-ask gaps of hundreds of dollars. Paying the full spread raises transaction cost. Commission analysis treats tick size, bid-ask width, and the spread paid as part of implementation cost when an order is chosen.

A stop as the inverse of a limit

A stop is described as the inverse of a limit. A stop-loss is an instruction that becomes active after price moves against the intended entry or open risk. It is triggered after the market moves against the trader, which the archive treats as inconsistent with buying lower and selling higher.

Educational research material, not investment advice. Historical source context does not establish present-day performance.
14 of 20 in the Limit order track
201341-41 pp.Next on Limit orderFutures platform order entry and per-trade feesChoosing the screen was part of choosing an execution path, because a no-fee in-house platform was commonly paired with extra-cost third-party platforms.
All readings on this track · 20 readings
  1. 1994Cash-first stops beyond crowded landmarks
  2. 1996Index spread pairs with seasonal filters and limit orders
  3. 2003Precommit the stop and limit after a rule-based entry
  4. 2005Limit orders, routing paths, and commission tradeoffs
  5. 2005Bracket orders that precommit stop and target exits
  6. 2005Precommit a stop-loss at entry with pivot triggers
  7. 2006Mechanical systems need fill-aware failure modes
  8. 2006Ranking near-term support for ETF limit entries
  9. 2007Precommit futures stops and limits with contingent orders
  10. 2007Overnight option limit fills, stops and trailing exits
  11. 2010Seasonal commodity windows and stop-limit fill risk
  12. 2011Routing fees, do-not-ship flags, and maker-taker limit orders
  13. 2011A three-bar inside-bar commodity setup still needs portfolio context
  14. 2012Limit orders when a tick saved costs the fill
  15. 2013Futures platform order entry and per-trade fees
  16. 2013Iceberg hidden size and option-spread packages
  17. 2014Marketable limits, directed venues, and spread filters
  18. 2015Filtering commodity option liquidity by spread, not open interest
  19. 2015Paired range-bar averages and next-bar limit exits
  20. 2019Uneven-wing modidor as one limit package
By fieldOrder types and routing87 readingsBy year2012165 readings
All 51 readings tagged Limit order
Also on Limit order5 readings
2005Limit orders, routing paths, and commission tradeoffs2011Routing fees, do-not-ship flags, and maker-taker limit orders2013Futures platform order entry and per-trade fees1994Cash-first stops beyond crowded landmarks2003Precommit the stop and limit after a rule-based entry