Order types: market, limit, stop and stop-limit
What each common order type does, when it can surprise you, and how to choose between them.
An order tells your broker how to buy or sell. The type you choose controls what you give up: certainty of getting filled, or certainty of the price.
Market order
Buys or sells right away at the best available price. You are almost sure to be filled, but you do not control the price. In a thin or fast-moving market, the price you get can be noticeably worse than the last quote.
Limit order
Sets the worst price you will accept: a maximum when buying, a minimum when selling. You control the price, but the order may not fill at all if the market never reaches your limit. A limit order can also be filled at a better price than the limit.
Stop order
Becomes a market order when the price reaches a trigger level, called the stop. People use stops to exit a losing trade. Because it turns into a market order, the fill can be worse than your stop, especially if the price gaps overnight or the market moves fast.
Stop-limit order
Becomes a limit order when the stop level is hit. This protects against a bad fill but adds the risk of not filling: if the price blows through your limit, the order sits unfilled and your position stays open.
Time in force
Orders also have a duration. A day order expires at the close. Good till canceled orders stay active until filled or canceled, usually for a limited number of days at your broker. Check the rules at yours.
Choosing
- If getting in or out matters more than a few cents, a market order is simple. Be careful with illiquid assets.
- If price matters more, use a limit.
- Know that a stop is a plan for an exit, not a guarantee of one.
Order handling differs by broker and by asset class, and rules for options, futures and crypto exchanges have their own details. Read your platform's order documentation before you use real money.