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Limit Orders and How to Save on the Spread

5 min readCompound

Key takeaways

A limit order is an instruction to a broker to buy (or sell) a security only at a specific price or better — as opposed to a market order, which buys immediately at whatever the current price is.

Market vs. limit order

A market order guarantees execution but not the price. A limit order guarantees the price but not execution — if the market never reaches your price, the order remains unfilled.

Spread and trading hours

For large ETFs (MSCI World, S&P 500), the spread during core trading hours is minimal — typically 0.01–0.05%. Outside trading hours — before the open or after the close — the spread can widen to 0.5–2%. A market order outside trading hours can therefore needlessly cost you a percentage point of value.

Practical rule: For regular ETF purchases, set a limit order just above the current ask (e.g. +0.05%) while the exchange is open. You get near-certainty of execution with protection against a sudden spread spike.

When to use a market order

A market order makes sense if you're buying a highly liquid ETF during core trading hours with a tight spread. In that case, speed and certainty of execution are the advantages, with no risk of non-execution. For less liquid instruments or outside trading hours, always prefer a limit order.

Connection to the overall strategy

Order choice is a small but recurring cost. Combined with other layers — TER, forex fee, commissions — it builds the total cost profile. More about how ETF instruments work and how to compare them in our guide.

FAQ

What is a limit order in simple terms?

An instruction to a broker to buy or sell at a specific price or better. A buy limit order says: "buy only if the price falls to X or below." A sell limit order says: "sell only if the price rises to X or above."

Why not always use a market order?

A market order buys at the current ask price regardless of how wide the spread is at that moment. Outside trading hours or for less liquid instruments, this can mean paying significantly above fair value.

Can a limit order go unfilled?

Yes. If the price never reaches your limit, the order expires. For regular DCA purchases, therefore, set the limit just above the current price — you minimize the risk of non-execution while protecting yourself against spread spikes.

Do limit orders apply to ETF savings plans?

Savings plans (automatic investment plans) typically execute as market orders at a set time. Most brokers do not allow limit orders within savings plans. For larger one-off purchases, always choose a limit order.

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