What is the point of using a limit order?

I think you might be misunderstanding what a market and limit order are.

To clarify.

A market order will be executed at whatever the current price is when the trade happens. So you can't be sure what price you will get, but you can be reasonably certain the transaction will happen.

A limit order allows you to put in an order and only exercise it at the price you specify or better (lower if buying, higher if selling).The downside is that the trade isn't guaranteed to happen if that price is not available on the market.

In most cases you should be using a limit order unless you absolutely MUST trade the stock at any price.

The usefulness of limit orders is not only for day trading

Suppose we are trading a very illiquid stock of a small company. Some people are trading around a small number of shares for 10€. There are standing sell orders of a volume of maybe 2k oder 3k shares around 10€. They are selling and buying some hundreds of stock. There is another standing sell order for 10k shares at 1000€.

You place a buy order for 12k shares.

What happens?

You pay 1000€ per share for the shares exceeding the 10€ sell orders. The price you see while placing the order is 10€.

Doesn't happen? I've myself bought shares for a total of 1000€ and increased the stock price by 10% while doing so (from 7€ to over 7.8€, so no penny stocks). And in the news, other people have done a lot worse. Just recently a women placed an order for ~25k and left the deal with a loss of 360k. (Source in german: https://app.handelsblatt.com/finanzen/banken-versicherungen/banken/comdirect-kursschwankung-beschert-anlegerin-hohen-verlust-doch-wer-traegt-den-schaden/27080916.html?ticket=ST-1351009-QtmrjHAqAesgEz2OPIhd-ap2)

The other answers are great but just a scenario to maybe better illustrate the point.

Let's say you're watching some penny stocks and you see one that routinely fluctuates between .01 and .03 most days. If you monitor this and the last trade was .01 and you execute a market order to buy, (it's not instant) you might get it at .01, .02 or .03. If you get it at .03 then theoretically you're screwed unless it breaks the pattern and goes higher. If you enter a limit order to buy at .01 and it executes, then you can enter a limit order to sell at .03 and triple your money if it executes.

The only time I use market orders is for mid-term to long-term investments or buying a dip or something where I want it now and I'm OK paying slightly more than the last trade price.

Especially when day trading, you should already have entry and exit prices in mind and a market order won't reliably accomplish that.

I'm going to offer a bit of nuance to add to the other answers, because you mention you are day trading.

Trading and especially day trading is quite a bit different from investing, as you are trying to make money off what are basically random fluctuations in price (which may be caused by random news), rather than long term fundamentals. To make money trading you need some kind of system which does a decent job at giving you indicators of when might be good times to get in and out of a trade. What you want to avoid are "false positives" - as prices at small time scales move up and down seemingly at random you can't just pick the last direction the stock was moving and for instance decide to buy just because the last tick went up. In any given time frame, the market might continue moving up/down (trend), or it might reverse. When you are day trading, one simple strategy is to either assume the price is going to trend or reverse and either go with the trend or against it if the previous trend seems to be stalling out.

Now where do limit orders come into this? The bid/ask spread itself introduces random fluctuations in the price. If you buy at the ask and somebody else immediately sells at the bid, the price immediately appears to move against you. But if you place a limit order to buy, you are essentially placing yourself to buy at the bid rather than at the ask, albeit at the end of the line at that price, wherever that is. Where this is ultimately beneficial in trading is when the price is not trending. If your indicators can do a decent job at predicting these inflection points (and people try a lot of things like Fibonacci retracement points and who know what else) then placing a limit order can both serve as an automatic entry point only when the trade is calculated as having a good chance of succeeding, as well as shaving off what you would have lost to the spread.

By contrast, if the price is trending placing a limit order will likely be futile as the price will be moving away from whatever limit you set. In this situation you might place a limit if your model gives you some idea of how much you expect the price to change so that the market doesn't move so fast that by the time your trade executes (slow fingers and what not) the price move you were expecting has already occurred. Again, this is really about reaching a point where the price is no longer trending, only from the reverse side (not getting in if you miss out on the gain rather than getting in as the reversal occurs).

JohnFX wrote:

A market order will be executed at whatever the current price is when the trade happens.

This is entirely accurate. But who sets "the current price"?

People entering limit orders.

When you enter a limit buy order, you announcing to the world, "I'm willing to buy at $x."

When you enter a market buy order, you are saying "whatever people are bidding, I'll pay it."

For small orders, you may not care about the difference. If you want to buy 100 shares and the security you are trading moves millions of shares per day, and your trading strategy won't be affected by a move of a few cents up or down, then it doesn't matter much.

But say you are looking to buy 1,000,000 shares. There are 400 shares with an ask of $50.00, 400 with $50.05, 400 with $50.10, ... you will have to pay increasingly higher prices as you exhaust the "order book", which is the list of people who have entered limit orders. Before your market order for 100,000 shares has finished executing you will have pushed the price up significantly, and that likely is contrary to your objectives.

Limit orders are needed to make the market work at all.

Imagine that every order placed by the buyer or seller of a commodity or equity were a market order.

That literally means "buy or sell this at any price". Well, what is that price? Nobody is specifying it: nobody is bidding and nobody is asking.

Limit orders are the bidding/asking mechanism that drives the price.

When you're day trading, you're frequently (typically?) trading rather small market fluctuations already. Individual cents matter (ideally you are multiplying these individual cents by a lot of shares to make the trade worthwhile.)

A limit order ensures that you're buying and selling on the right side of the market spread rather than on the wrong side of it as a market order often would. It also ensures that your trade simply won't happen at all if your target price is not available (e.g. if you tried to buy on a quick price dip, but the dip was already gone before you got your order in.) This is very important when day trading since you're likely already trying to trade rather small swings in the price where the market spread represents a significant portion - or even the entirety - of your potential profit. And because you don't want your buy to execute if you've already missed the window of opportunity for your trade.

Also, just as a word of advice, day trading is usually not advisable unless you're already quite familiar with the markets and really know what you're doing. It does sound like you're staying on top of it, which is good, but, even so, day trading is quite risky and is rarely a good idea for inexperienced traders, unless maybe you're just doing it in small quantities on no-commission trades as a learning exercise.

The other answers do a fine job, but maybe an example will help. The market is composed of bids and asks; the minimum selling price is the ask and the maximum offer price is the bid. When these two values overlap, your broker executes the trade.

Imagine an instance where a seller sets a ridiculously high price (think 25% higher than the last transaction) on a thinly traded security at the end of the day. If some poor fellow then enters a market order overnight, and nobody else comes along and sets a lower floor by market open, the order is filled at the high price.

This happens more often than you think, and in fact is a kind of crummy way that some attempt to periodically game the system and take advantage of inexperienced traders.