Order Types: Market, Limit, and Stop

Why this matters

Every time you buy or sell, you choose an order type, even if the app picks one for you by default. The choice decides whether you're guaranteed a trade, guaranteed a price, or neither. Most of the time the difference is small. In a fast market or a thinly traded stock, it can be large.

The four main order types

The most common order types are market orders, limit orders, and stop orders, with the stop-limit order as a combination.¹

• A market order buys or sells immediately. It's all but guaranteed to fill, but the price isn't guaranteed. A market order to buy generally fills at or near the current ask, and a market order to sell at or near the bid.¹
• A limit order buys or sells only at a set price or better. A buy limit fills only at the limit price or lower, and a sell limit only at the limit price or higher. It isn't guaranteed to fill.¹
• A stop order waits until the price reaches a trigger, called the stop price, and then becomes a market order. A sell stop is set below the current price, often to limit a loss or protect a gain.¹
• A stop-limit order also waits for a stop price, but then becomes a limit order instead of a market order.²

STU Corp, a fictional company, has a bid of $49.95 and an ask of $50.05. You own 100 shares.

Your order	What happens
Market buy, 10 shares	Fills immediately, likely near $50.05
Limit buy, 10 shares at $48	Waits. Fills only if sellers accept $48 or less. May never fill
Sell stop at $45	Nothing until the price reaches $45, then sells at whatever the market pays
Sell stop-limit, stop $45, limit $44	Once $45 is reached, sells only at $44 or better. If the price drops straight past $44, it doesn't sell

The limit buy at $48 is the approach from Scaling Into a Position: naming the price you want, and accepting that the order might not fill.

The hidden risk in stop orders

Stop orders sound like a safety net: "sell if it falls to $45." But the stop price is only a trigger, not a guaranteed price. Once triggered, the order becomes a market order and fills at whatever price is available, which can be significantly different from the stop price.²

This matters most in two situations:

• Gaps. If bad news arrives overnight and STU Corp opens at $38, a sell stop at $45 triggers and sells near $38, not $45.
• Brief swings. A short, sharp drop during the day can trigger a stop order at a price much worse than where the stock ends the day.²

A stop-limit order avoids selling at an unexpectedly bad price, but the limit may prevent the order from filling at all, leaving you holding the stock as it falls further.²

How long an order lasts

Orders also have a time limit. Unless you choose otherwise, most orders are day orders: if they haven't filled by the end of regular trading hours, they cancel. A good-til-canceled order stays open until it fills or you cancel it, though brokerage firms set their own limits on how long that can be.³

Key takeaways

• Market orders guarantee a fill, not a price. Limit orders guarantee a price, not a fill.
• A stop order becomes a market order once triggered, and can fill far from the stop price in a gap or fast drop.
• Stop-limit orders cap the price but may not fill at all.
• Most orders are day orders unless you choose good-til-canceled.

Check your understanding

You set a sell stop at $80 on a stock trading at $90. Overnight, bad news hits and the stock opens at $70. What most likely happens?

1. Your shares sell at $80, the price you set, as soon as trading opens.
2. The stop triggers and your shares sell at or near $70.
3. Nothing, because the price skipped $80.

You want to buy a thinly traded stock and care most about not overpaying. Which order fits best?

1. A limit order at the most you're willing to pay.
2. A market order, so it fills right away at the best price.
3. A sell stop order, set just below the current price.

What's next

Once an order fills, a few more things happen behind the scenes. The next lesson, Settlement, Fees, and Fractional Shares, covers when a trade is truly final, what it costs, and how to buy less than one share.