#OrderTypes101 Types of Stock Market Orders 101

Make smarter trades with the right order type

When buying or selling stocks, knowing how to choose the right order type is essential. Each type of stock order has unique characteristics, advantages, and risks, so understanding the basics can help you make smarter trades and better manage your portfolio. In this article, we will cover three essential types of orders: market, limit, and stop-limit, and explain how and when to use each one.

Basics: Types of Orders You Should Know

Market Order: an order to buy or sell a stock immediately at the current market price.

Limit Order: an order to buy or sell a stock only at a specific price or better.

Stop-Limit Order: a combination of a stop-loss order and a limit order, allowing you to set an activation price (also known as the stop price) and a limit price for your trade.

How Each Order Works in Real Situations

1) Market Order

Suppose you want to buy shares of Company ABC immediately. The current market price is $100. By placing a market order, your trade will be executed instantly at an approximate price of $100. However, keep in mind that the actual price at which it executes may differ slightly from $100 due to slippage. During those few seconds while sending the trade, the price could have risen to $101.50, and your trade could close at $101.50.

2) Limit Order

If you believe that Company ABC is too expensive at $100 and perhaps only want to buy if it drops to $98, place a limit buy order. Your trade will only execute if the price drops to $98 or less.

3) Stop-Limit Order

Suppose you own shares of Company ABC at $98. If the price drops to $95, you will want to sell them because you no longer feel very optimistic about the stock. You can set a stop-limit order with an activation price.