An order is your instruction to a broker to buy or sell shares. The order type decides two things: the price you are willing to accept, and what happens if the market does not reach that price straight away. Choosing the right type matters as much as choosing the share, because the same trade can fill at very different prices depending on how the order is set.
This guide covers the four main types: market, limit, stop and stop-limit. It explains how each works with examples, where each one can go wrong, and how to choose between them. The rules for each type are set by the broker and the exchange, so check how your own platform handles them.
Market orders
A market order tells the broker to buy or sell immediately at the best available price. It trades now, and it does not specify a price. Its advantage is certainty of execution: if there are buyers and sellers, the trade will happen.
Its disadvantage is that the price is not certain. In a liquid share, the difference between the price you expect and the price you get is usually small. In a thin share, or in a fast market, the price can move a lot between the moment you click and the moment the trade fills. This difference is called slippage.
Example: the last traded price of a share is 100, but the best offer is 101 and the next offer is 103 because there are few sellers. A market order to buy 1,000 shares might fill partly at 101 and partly at 103, so your average price is above 101.
Use market orders when you need the trade now and the share is liquid. Avoid them in thin shares, around the open or close, and during news.
Limit orders
A limit order sets the most you will pay when buying, or the least you will accept when selling. It fills only at that price or better. Its advantage is price control. Its disadvantage is that it may not fill at all, if the market does not reach your price.
Example: a share trades at 100. You place a limit order to buy 500 shares at 98. The order sits in the market until a seller agrees to sell at 98 or below. If the price falls to 98, your order fills. If the price rises to 105 and never comes back, you do not buy.
When selling, the logic reverses. A limit sell at 110 means you will sell only at 110 or above. The order will not fill if the price stays below 110.
Limit orders suit anyone who has a view on the price and does not need to trade immediately. They are the default choice in many markets for good reason. Check how long the order stays active: a day order expires at the end of the session, and a good-till-cancelled order can stay open for longer, depending on your broker.
Stop orders
A stop order, also called a stop-loss when used to sell, becomes a market order once the price reaches a level you set. It is an instruction that waits. The stop price is the trigger, not the fill price.
Example: you bought a share at 100 and set a stop-loss sell at 95. If the price falls to 95, the order becomes a market sell. It may fill at 95, or lower if the price is falling fast. The stop limits the loss, but it does not guarantee the exit price.
A stop-buy works in the same way for a short position or a breakout. You set a buy stop at 105. If the price rises to 105, the order becomes a market buy. This is often used to enter when a price breaks above a level, but it can fill far above 105 in a fast market.
The guide on stop losses covers how to choose a stop level and size a position around it.
Stop-limit orders
A stop-limit order combines the two. When the price reaches the stop level, it becomes a limit order rather than a market order. You control the worst price you will accept, but the order may not fill if the price moves past your limit.
Example: you hold a share bought at 100 and place a stop-limit sell with a stop at 95 and a limit at 94. If the price falls to 95, the order becomes a limit sell at 94 or better. If the price falls quickly through 94 to 90, the order sits unfilled, and you still hold the share as it keeps falling.
This is the main trap of the stop-limit. It protects you from a bad fill, but it can leave you exposed in a fast fall, which is exactly when a stop is most needed. Use stop-limits when a poor fill is worse than no fill, and understand that a gap can leave the order unfilled.
Comparing the four
| Order | When it trades | Price control | Main risk |
|---|---|---|---|
| Market | Immediately | None | Slippage in thin or fast markets |
| Limit | Only at your price or better | Full | May never fill |
| Stop | Once the trigger price is reached | None after the trigger | Fill may be far from the trigger |
| Stop-limit | Once triggered, at your limit or better | Full after the trigger | May not fill in a fast move |
Order validity
Every order also has a validity. A day order expires at the end of the session if it has not filled. A good-till-cancelled order stays open until it fills or you cancel it, though many brokers cancel it after a set period. Check the options on your platform. An order you forgot about can fill on a day you did not expect.
Common mistakes
Using a market order in a thin share. The fill can be far from the price you saw on the screen.
Setting a stop at a round number that everyone else uses. Many traders place stops at the same levels, and fast moves can sweep through them.
Placing a stop-limit with a limit too close to the stop. A small gap can leave the order unfilled while the price keeps falling.
Forgetting an open order. A limit or good-till-cancelled order can fill weeks later, after your view has changed.
Changing the order after a loss. Moving a stop further away because a trade is going against you turns a planned loss into an unplanned one.
How to choose
Start with the question: how important is it to trade now, and how important is the price? If you need to trade now in a liquid share, a market order is fine. If the price matters more than the timing, use a limit. If you need protection against a fall, use a stop, and consider a stop-limit only if a poor fill is worse than an unfilled order.
Check the spread and the volume before choosing. The bid-ask spread shows how much you would lose by buying at the ask and selling at the bid. The guide on the bid-ask spread explains why that matters.
Checklist before you place an order
- Confirm the share, the side (buy or sell), and the number of shares.
- Choose the order type and check the price it will trade at.
- Check the validity: day or good-till-cancelled.
- Look at the spread and the volume for the share.
- Note the order in your journal, so you know what is open.
Key takeaways
Market orders trade now at the best available price, limit orders trade only at your price or better, stop orders become market orders when a trigger is reached, and stop-limit orders become limit orders at that point. Each one trades off certainty of execution against price control. Check the validity and the liquidity before placing the order, and avoid the common traps: market orders in thin shares, stop-limits in fast markets and orders left open by accident.
This guide is for general information, not financial advice. See the disclaimer.