Basic Stock Order Types

When an investor figures out what stock they want to purchase, they need a stock order to execute the trade.

There are many types of stock orders, with the most common being a Market Order and Limit Order.

It’s important to understand the differences between stock orders to figure out which one would best suit your needs as an investor.

Market Order

A market order is the most basic type of stock trade. It is simply an order to buy or sell a stock at a price determined once the trade executes.

The order will execute immediately, guaranteeing a trade to go through. However, because of the volatile nature of the stock market, the price when putting in the market order may not be exactly the same as the price you buy or sell at once the trade executes.

For example, if you put in a market order for a share of XYZ trading at $2000, you may end up paying a little more or less once the trade executes.

Use a market order if you want an immediate trade and are okay with small price fluctuations at time of trade.

Limit Order

A limit order is an order executed in the future once a stock price hits a specified value. This allows an investor to choose a price that they are willing to buy or sell a stock at, at which the trade will execute (if at all).

This order guarantees the price you want to buy or sell a stock at, but does not guarantee a trade will ever go through, especially if the specified price is much higher or lower than the current stock price.

Keep in mind that when specifying a value below the current stock price to buy or a value above to sell, the limit order will facilitate that trade immediately, meaning the price may continue dropping or increasing, resulting in some loss.

For example, you may put in a limit order to buy a stock at $100 and then the stock price goes from $110 to $90 suddenly. Since your limit order went through at $100, you are now at a $10 loss.

Stop Loss

Also known as stop or stopped market order, a stop loss order is an order goes into effect once a specified stock reaches a predetermined price. This type of order is mostly used to ensure limited loss.

The order is dormant until that point, and converts into a market order as soon as the specified price is reached.

Then, the shares are bought or sold at the best available price as in a typical market order. This is different from a limit order which locks in the predetermined price at execution.

For example, if you purchased a share of XYZ at $500, you can put in a stop loss order at $400, ensuring that your stock would be sold as soon as the share price reached $400. Although the price may fluctuate a bit in the moment of execution of the market order, the trade is guaranteed to go through, ensuring you don’t take on a loss greater than approximately $100 per share.

Stop Limit

This is similar to a stop loss order, but instead of converting into a market order once you reach the predetermined price, the order converts into a limit order.

This puts a limit on the price at which the trade will execute, combining the dormant nature of a stop order and locking in a specific price of a limit order.

However, as with regular limit orders, there is no guarantee this will execute even is the stop price is reached.

For example, if you wanted to purchase a share of XYZ at $600, a stop limit order would ensure that as soon as the share price reached $600, a limit order would execute. This doesn’t guarantee an order to go through once that price is reached, since the price may change during execution, but it does guarantee that if your order does go through, the price you pay will be at your specified price or better.

Good Til Canceled Order

‌A Good Til Canceled order places a deadline on different stock orders, meaning any order you put in will be active until its filled, canceled, or the deadline has passed. Most brokerages will allow the length of time between an order initiating and this chosen deadline to be up to 90 days.

For example, if you put in an order for 100 shares of XYZ and choose a deadline in 10 days, three things can happen. The order will either be executed, you can cancel it yourself, or it will be canceled on its own by the chosen deadline.

Day Order

Generally, every order is by default a day order. A day order is the default time frame an order can typically stay open, unless you have decided to use a Good Til Cancel order which would specify a deadline. Once the trading day closes (4 pm Eastern time), your order expires. If the order had not been executed and you still want it to go through, you would need to re-order it the next trading day.