When you buy or sell a stock, you do not just choose what and how much. You also choose how the order is executed. The order type can make a real difference to the price you pay, especially in fast-moving or thinly traded stocks.
Market orders
A market order tells your broker to buy or sell immediately at the best price available. For a buy order, that is usually the current ask; for a sell order, the current bid.
- Advantage: near-certain execution, usually within moments during regular trading hours.
- Risk: no price protection. In a fast market, or for a stock with a wide bid-ask spread or little trading volume, you may pay noticeably more, or receive noticeably less, than the last price you saw. This difference is called slippage.
Market orders are generally reasonable for large, heavily traded stocks and ETFs during regular hours, when spreads are tight.
Limit orders
A limit order sets the worst price you are willing to accept. A buy limit at $50 will only execute at $50 or lower; a sell limit at $60 will only execute at $60 or higher.
- Advantage: full control over price.
- Risk: the order may never execute if the price does not reach your limit, or may only partially fill.
Limit orders are useful for less liquid stocks, for volatile periods, and whenever the exact price matters to you.
Stop orders and stop-limit orders
Stop (stop-loss) orders
A stop order sits inactive until the stock trades at a trigger price, called the stop price. Then it becomes a market order. Investors often use a sell stop below the current price to limit losses. The catch: if a stock gaps down overnight, for example after bad earnings news, the order triggers at the open and fills at the next available price, which can be far below the stop.
Stop-limit orders
A stop-limit order becomes a limit order, not a market order, when triggered. That prevents a fill at a terrible price, but if the stock falls through your limit quickly, the order may not execute at all, leaving you holding the position.
Time in force and trading hours
Orders also carry a duration. A day order expires at the end of the trading day if not filled. A good-’til-canceled (GTC) order stays open until it fills or you cancel it, although many brokers cap it at a set number of days.
Regular US stock market hours are 9:30 a.m. to 4:00 p.m. Eastern Time. Many brokers also offer pre-market and after-hours sessions. Trading volume is usually lower outside regular hours and spreads wider, which is why many brokers accept only limit orders in extended sessions.
Which should you use?
- Buying a large, liquid ETF during regular hours: a market order is usually fine, though a limit near the current price costs little.
- Trading a small or thinly traded stock: use a limit order.
- Trading around news, at the open, or in extended hours: use a limit order.
- Protecting a position: understand that stop orders do not guarantee a price.
New to the vocabulary? Start with our stock market glossary for beginners.
