#OrderTypes101 Types of Orders

The most common types of orders are market orders, limit orders, and stop-loss orders.

A market order is an order to buy or sell a security immediately. This type of order guarantees execution but not the execution price. Generally, a market order is executed at the bid price (for a sell order) or the ask price (for a buy order) or close to it. However, it is important for investors to remember that the last traded price is not necessarily the price at which a market order will be executed.

A limit order is an order to buy or sell a security at a specific price or better. A buy limit order can only be executed at the limit price or lower, and a sell limit order can only be executed at the limit price or higher. Example: An investor wants to buy shares of ABC for a maximum of $10. The investor could place a limit order at this amount, which will only be executed if the price of ABC shares is $10 or lower.

A stop order, also known as a stop-loss order, is an order to buy or sell shares once their price reaches the specified price, known as the stop price. When the stop price is reached, the stop order becomes a market order.

A buy stop order is entered at a price above the current market price. Investors often use a buy stop order to limit losses or protect gains on short-sold stocks. A sell stop order is entered at a price below the current market price. Investors often use a sell stop order to limit losses or protect gains on stocks they own.