This article is general information, not a recommendation to buy or sell anything. Academy articles are prepared by the ETTFOS team and other writers. They make no claim of expertise or accuracy, and they are not kept up to date after they are published.
Table of Contents
Every trade begins as an instruction to a broker: what to buy or sell, how much, and on what terms. The terms are the order type, and they decide what happens when the market does not cooperate.
Most of the differences come down to one trade-off. An order can be sure to be executed, or sure of its price, but not both.
Two prices, not one
A market shows two prices at once. The bid is an offer to buy at a stated price; the ask, or offer, is the price at which someone will sell. The difference between them is the bid-ask spread.
A market order to buy generally fills at or near the ask, and one to sell at or near the bid, the SEC explains. It adds a point that is easy to miss: the last-traded price on the screen is not necessarily the price an order will get.
Market orders: speed first
A market order asks for the best available price, now. Generally it will be executed immediately, but the price it gets is not fixed in advance.
The gap between the quote and the fill comes from demand and from the orders waiting at each price. If other orders are executed first, the SEC notes, a market order to buy may be filled higher, and parts of a large order may be filled at different prices.
That gap is slippage, which has its own article in this Academy.
Limit orders: price first
A limit order sets the worst price you will accept. A buy limit order can only be executed at the limit price or lower, and a sell limit order at the limit price or higher.
The cost is certainty of execution. A limit order can only be filled if the market reaches the limit price, so it may not be filled at all.
In return, it helps make sure you do not pay more than a price decided in advance, or, when selling, receive less.
Stop orders: a trigger, not a price
A stop order, also called a stop-loss order, waits until the market reaches a chosen level, the stop price. Then it becomes a market order.
A sell stop sits below the current price and a buy stop above it. Investors generally use them to limit a loss or to protect a profit, the SEC says.
The stop price is not the price you will get. It is a trigger, and the price of the resulting market order can deviate significantly from it, depending on what is available when it executes.
Short-term swings can set it off. The SEC warns that a brief intraday move can trigger a stop order and fill it at a price substantially worse than the day’s closing price.
Firms also differ on what counts as reaching the stop: some use only last-sale prices, others use quotes.
Stop-limit and trailing stop orders
A stop-limit order combines the two. Once the stop price is reached, it becomes a limit order, so you control the price; but, as with every limit order, it may not be executed if the price moves away from the limit.
The stop and the limit need not be the same. In the SEC’s example, a sell stop-limit order with a stop price of $3.00 and a limit price of $2.50 becomes active at $3.00, but can only be executed at $2.50 or better.
A trailing stop order moves its stop price with the market, by a set amount or percentage, while the price moves in your favor, and stays fixed when it turns against you.
Not every broker offers every type, and some offer orders with similar names that differ in important ways.
Outside regular hours
Regular trading hours for US exchange-listed stocks run from 9:30 a.m. to 4:00 p.m. Eastern Time. Sessions before and after them follow different rules, and the SEC lists their risks:
- Less liquidity: there is generally less trading interest, and so less price competition.
- Wider spreads: the gap between the bid and the ask is generally wider, or there are no quotes at all.
- Limit orders only: many brokerage firms accept only limit orders then, to protect investors from unexpectedly bad prices.
- News: companies may announce important news outside regular hours, which may lead to significant price changes.
How long an order lasts
An order also carries a time instruction. These are the common ones in the SEC’s list:
- Day orders: unless you choose otherwise, an order is good only for the trading day it is entered, and generally cancels at the end of regular trading hours.
- Good-til-canceled (GTC): it lasts until it is executed in full or canceled, within time limits that vary by firm.
- Immediate-or-cancel (IOC): whatever cannot be filled at once is canceled.
- Fill-or-kill (FOK): executed at once and in full, or not at all.
- All-or-none (AON): executed in full or not at all, but, unlike fill-or-kill, it stays open until then.
- On open and on close: executed in the opening or the closing trade; any balance not executed is canceled.
An order left open can still be filled weeks later. Open orders deserve the same attention as open positions.
The takeaway
Order types do not make a trade better or worse. They decide what you give up when the market moves fast: certainty of price, or certainty of execution.
Which one to use, and when, belongs in rules written before the trade, not decided in the moment.
Your results will depend on your own decisions, your capital and market conditions, and you can lose money.
