A limit order is like a market order with one exception, price takes the highest priority. For limit buy orders, the customer includes, along with the type and quantity of futures contracts to purchase, a maximum price to pay for the contracts. A customer will use a limit buy order if they desire to buy the futures contract, but want to pay no more than a specified price - the limit price.
If you place a limit order, you’re asking the broker to fill the order at a specified price. If you say, "Buy 20 January Lumber at 395 even" ($395.00/thousand board feet), the floor broker can fill the order at 395.00 or any price lower, but not at a higher price. Likewise, if you say "Sell 10 May Lumber at 40 even" ($400.00/thousand board feet), the floor broker can fill the order at 400.00 or any price higher, but not at a lower price.
If the price you state in your limit order isn’t reached during the trading session, your order won't be filled at all.
This order is placed when you are looking to enter a new position, or to exit an open position at a specific price ‘or better’. For example, if a person wants to buy 1 May Corn and the current price is 275 per bushel, and they are not willing to buy it any higher than 275 per bushel, (which may happen if you use a market order because while the order is being placed the market could trade higher by the time your order hits the pit) you would place the order to Buy 1 May Corn at 275 Limit. This tells the brokers in the pit that you are looking to purchase the Corn at no higher than 275. The market may trade at 275 several times and you may still not be filled at your price. The reason is that a Limit Order is only guaranteed for execution, if the market trades through the Limit price. If the low of the day is 275 per bushel, it is possible you were executed at that price, but more times than not, your broker will report to you that the trade was ‘unable’. If you are in a position (either long or short) and are looking to exit a trade at a particular price you could also use a limit order. For example, if you are long May Corn at 275 per bushel and want to take profit at 290 per bushel, you would place your order to Sell 1 May Corn at 290 Limit. If you are short 1 May Corn at 275 and want to take your profit when it drops to 265 per bushel, you would place the order to Buy 1 May Corn at 265 Limit. Once again, if the market just touches your Limit price (even 20 times) and doesn’t penetrate it, you are not guaranteed a fill and should not be surprised when your broker advises you that you were not filled. Keep in mind that any order that you decide to place is taken as a day order (The order is canceled at the close of the market on the day you placed the order) unless you specify that you want the order to be working until you cancel it. This order is a GTC (Good till Canceled) order.