Execution price of buy/sell limit orders

Discussion in 'Ask any question!' started by Dor605, Apr 8, 2021.

  1. Dor605

    Dor605 New Member

    Apr 8, 2021
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    Hi there,

    I'm a total beginner and I can't seem to understand something about the execution price when it comes to buy/sell limit orders.
    I read that when you set up a buy limit order at a certain price per share then that order would be filled only if the price would reach that limit price or below and in that case, the execution price would be your limit price or below it (which is, of course, better for you as the buyer).
    The same works analogously in the case of a sell limit order.
    What I don't understand is how come it works in your favor both ways?
    If I set a buy limit price and at some point the ask is below it, then according to my understanding the execution price should be the better price (that of the ask). But then again, if I'm looking from the side of the person that gave that ask price I would also say that he should get the better price (that of my higher limit price).
    What am I missing here?
    Thanks for any clarification and sorry for this noob's question.
  2. StockJock-e

    StockJock-e Brew Master
    Staff Member

    Apr 3, 2016
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    I dont really understand your question. I tried reading 5 times and it still does not make much sense.

    What works in your favor?

    Maybe if you looked at a level 2 screen it would make more sense. When you submit an order, it goes into an order book and level 2 quotes show you this:


    The market maker SBSH is bidding 3.93 and the MM NITE is asking 3.95. The next best ask is by UBSS at 3.98 and so on.

    Is that making sense?
  3. spindr0

    spindr0 Active Member

    Mar 4, 2021
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    In the US we have the NBBO (National Best Bid and Offer) which requires brokers to trade at the best available (lowest) ask price and the best available (highest) bid price when buying and selling securities for customers.

    If you place a market order to buy, you pay the ask price (assuming that there's sufficient liquidity to fill your entire order at that price).

    If you place a market order to sell, you pay the ask price (assuming that there's sufficient liquidity to fill your entire order at that price).

    If you place a buy order at a lower price or a sell order at a higher price then your order goes on the order book and will only get executed if NBBO reaches that price.
    StockJock-e likes this.

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