Amber Anand, Mehrdad Samadi, Jonathan Sokobin, and Kumar Venkataraman
Review of Finance, Volume 30, Issue 2, March 2026, Pages 459–488, https://doi.org/10.1093/rof/rfaf049
Since the onset of the COVID-19 pandemic, retail trading in U.S. equity markets has grown substantially, prompting renewed academic interest in the trading practices and execution quality experienced by individual investors. While most prior studies have focused on retail marketable orders—those that execute immediately at prevailing prices—retail brokerages also allow traders to use limit orders, yet little is known about how these perform in practice. This gap in largely due to the lack of suitable data to distinguish retail orders from non-retail orders. In Retail Limit Orders, the authors analyze over 27 million retail equity orders submitted in May 2020 by clients of 19 brokerage firms, using data from FINRA’s Order Audit Trail System (OATS), to evaluate how limit orders compare to marketable orders in terms of execution quality, trading costs, and fill rates.
The study finds that limit orders represent a sizable portion of retail activity, accounting for nearly 30 percent of submitted shares and over 18 percent of executed shares. Retail limit orders consistently achieve lower trading costs than marketable orders; a result robust to controls for differences across stocks, order placement time, order size, trade direction and brokerages. On average, retail limit orders cost about 10 basis points less than comparable marketable orders, using the implementation shortfall (IS) approach, which incorporates both execution cost and the opportunity cost of non-execution. The cost advantage is larger when spreads are wide, volatility is high, or when trading small-cap stocks—conditions under which liquidity provision is better rewarded.
Importantly, the study shows that the trading cost advantage of retail limit orders is likely linked to their notably higher fill rate – about 65 percent in large- and mid-cap stocks, and about 60 percent in small-cap stocks. Most retail limit orders are placed behind the best available quotes rather than at or within the spread. Orders placed significantly behind the quote still fill about half the time, aided by the fact that retail traders typically allow their orders to remain open far longer than the fleeting limit orders seen in high-frequency trading. More than 60 percent of retail limit orders in the sample stayed active for at least 10 minutes, and many remained open for an hour or more, increasing their chances of execution and reducing opportunity costs.
The OATS dataset also enables the researchers to study how brokers route and handle different types of retail orders. While nearly all marketable orders are routed to market makers and executed on a principal basis, only 11 percent of limit orders are sent to exchanges. Among the limit orders routed to market makers, about one-third are filled directly by the market maker, while most others are executed as riskless principal trades, in which the broker first sources liquidity elsewhere. These routing practices, the authors find, do not materially affect the cost advantages of limit orders.Overall, the study provides new evidence that limit orders can be an effective strategy for retail traders who are willing to be patient and supply liquidity. The results on order duration, fill rates, and trading costs indicate that retail limit orders are effective not despite retail traders being slower, but likely because they avoid the rapid placements and cancellations that dominate the broader market.