Market, limit, or stop order?
Market orders fill immediately but do not provide control over the filling price. Limit orders allow setting a preferred filling price but execution is not guaranteed. Stop orders trade at a specific level, but can be filled at a higher price once triggered and turned into a market order.
Market, limit, and stop orders are the three most commonly used order types. Each of them has its own distinctive features.
A market order is an order to buy or sell a stock at the best available price. It has the best chance of filling, but the filling price is not certain. A limit order is an order to trade a security at a specified price or better. It guarantees the filling price, but it is not guaranteed to be filled. A stop order, also called a stop-loss order, is an order to trade a security when it has reached above or below a specified price. It is triggered at the stop price and filled as a market order.
To sum up:
- Market orders work best for investors who want their orders to fill immediately and do not intend to control the filling price.
- Limit orders allow investors to set a price they wish to fill at. However, the execution of the order is not guaranteed, since it is not known where the stock price will go.
- Stop orders allow investors to trade until the stock price reaches a specific level. However, once the order is triggered and turns into a market order, the order can be filled at a much higher price than anticipated.
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All investments involve risk, and not all risks are suitable for every investor. The value of securities may fluctuate and as a result, investors may lose more than their original investment. The past performance of a security, or financial product does not guarantee future results or returns. Keep in mind that while diversification may help spread risk it does not assure a profit, or protect against loss, in a down market. There is always the potential of losing money when you invest in securities, or other financial products. Investors should consider their investment objectives and risks carefully before investing.
Lesson List
1
Limit Order
2
Market Order
3
Market Order
4
Stop Order
5
Stop Limit Order
6
GTC vs Day Order
Market, limit, or stop order?
8
How to read bids and asks?