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Retail investors have become more active in the stock market in the post-pandemic era. Yet little is known about how they trade—or why it matters. In new research, Finance Professor Kumar Venkataraman of ��«����Ƶ Cox and his coauthors examine retail trader behavior, distinguishing it from the more commonly studied institutional trading. Many retail investors believe they are at a disadvantage in today’s US equity markets, where speed gives high-frequency traders a significant edge. However, Venkataraman and his coauthors find that patience can pay off: U.S. retail investors who use “limit orders” help provide liquidity to the market and benefit from lower trading costs in return. 

Every retail investor faces a fundamental choice when placing a trade: use a market order, which guarantees immediate execution at the current price, or place a limit order, which specifies a maximum price for buying or minimum price for selling. "Once the retail investor has made the investment decision, deciding which stock to buy or sell, they still need to decide how to execute the trade," explains Venkataraman. “You log into your brokerage account and place the order. It's just part of the investment process, something you can’t avoid.” 

Limit orders are an important tool in the retail trader’s strategies, the authors find. Until now, little was known about how often retail investors use limit orders or which type of order, whether a market or limit order, works better for them, given they often lack the technological advantages of institutional traders. 

The researchers use regulatory data from FINRA (Financial Industry Regulatory Authority) that allows them to identify retail orders within the full universe of stock market orders. Since high frequency trading accounts for about 70% of total volume, the ability to isolate retail order flow offers valuable insights into a segment of the market that has received relatively little attention. 

Going with flow

The study analyzed over 27 million orders from individual account holders at 19 active retail brokers during May 2020. The sample includes 300 stocks, evenly split between large-cap, mid-cap and small-cap companies. 

Among the key findings: about 25% of retail orders are limit orders, accounting for roughly 30% of total shares submitted. Interestingly, retail traders often place these limit orders well outside the current best market prices. As an example, when the bid-ask spread is 3 cents, more than one-third of retail limit orders are placed more than 15 cents away (five times the spread) from the best quote.

A common concern with limit orders is that the order does not get filled if the market does not reach the specified limit price. However, Venkataraman and his co-authors find that retail limit orders often do get executed. “About 65% of the retail limit orders in our sample are fully filled,” Venkataraman explains. “Even for small stocks, the fill rate is around 60%, and surprisingly, even those placed further from the market still get filled about half the time. In contrast, NYSE data on all orders shows an average fill rate of less than 3%.”

The authors explain that the high fill rate for retail limit orders is due to a key difference in how retail and institutional traders use them. Institutions often rely on algorithms that cancel limit orders within seconds. In contrast, retail traders tend to keep their limit orders open much longer—on average, more than 20 minutes. For orders placed further from the current price, the average order duration is slightly less than an hour. The extra time allows natural market volatility to work in the trader’s favor, increasing the chances prices move toward the retail trader’s target. By comparison, high-frequency traders typically cancel their limit orders in less than a second. 

The study also finds that limit orders reduce trading costs of retail investors by about 10 basis points (0.10%) compared to market orders. For small-cap stocks, the savings are greater, about 20 basis points, reflecting the higher reward for providing liquidity in less liquid markets. “Our measure formally accounts for the possibility that sometimes the limit order will not execute,” Venkataraman explains. “And when you don’t trade, you might have to chase the price. So there’s a cost when a limit order doesn’t fill, and a penalty for waiting while prices move away.” By including these scenarios, the study offers an unbiased, apples-to-apples comparison of market and limit order strategies.

In practice and policy

The findings suggest the current market structure works reasonably well for retail traders despite ongoing concerns about the advantages held by institutional traders. "Regulators want to know: ‘Is our current market structure suitable for slower participants, like retail traders, to participate in a fast market dominated by high-frequency traders?'" Venkataraman asks. “Our analysis suggests that overall it seems to be working fine."

Limit orders are a viable strategy for reducing trading costs. "Limit orders are a valuable tool available to retail investors," Venkataraman advises. "Even limit orders that aren’t aggressively priced often get filled—65% of the time in our data, and with a price advantage." 

Even in today’s fast-moving, algorithm-driven market, the patient approach of retail investors can still yield measurable benefits.


The paper “Retail Limit Orders” by Kumar Venkataraman of ��«����Ƶ Methodist University, Cox School of Business; Amber Anand of Syracuse University; Mehrdad Samadi of the Federal Reserve Board; and Jonathan Sokobin at FINRA, is under review. 

Written by Jennifer Warren.