Order Types 101: Understanding the Basics

There are several types of orders that investors can use when buying or selling securities. These orders can be categorized into different types based on their characteristics and the conditions under which they are executed.

Market Orders

A market order is an instruction to buy or sell a security at the best available price in the market.[1] It is the most straightforward type of order and is usually executed immediately. A market order guarantees execution, but it does not guarantee a specific price. [2]

Limit Orders

A limit order, on the other hand, allows investors to specify a price at which they are willing to buy or sell a security.[3] A limit order guarantees a specific price, but it does not guarantee execution. [4] Limit orders can be used to buy or sell a security at a specific price or better.

Stop Orders

Stop orders are used to buy or sell a security when it reaches a certain price, known as the stop price.[5] There are two types of stop orders: stop-loss orders and stop-limit orders. A stop-loss order becomes a market order when the stop price is reached, while a stop-limit order becomes a limit order. [6]