Stock Order Types Overview

Overview

This lecture explains different stock order types—market, limit, and stop orders—how they work, and when investors might use them.

Investors must choose an order type before buying or selling stocks or ETFs.
The order type instructs the broker on how to execute the trade.
The timing and price of execution depend on the chosen order type and market conditions.

A market order seeks immediate execution at the next available price.
Fast price changes may cause the actual execution price to differ from the quoted price.
Market orders prioritize speed over price and have a high chance of being filled.
Market orders can lead to undesired execution prices in volatile or illiquid markets.
Best used during trading hours and in highly liquid markets.

A limit order specifies a price at which to buy or sell and only executes at that price or better.
Limit orders may not be filled if the market never reaches the specified price.
Used when investors have a target entry or exit price and are willing to wait.

A stop order becomes active as a market or limit order when a set activation price is reached.
Used to buy when a price rises to a certain point (buy-stop) or to sell to limit loss (sell-stop).
Three types: stop-market (executes at next price after activation), stop-limit (executes at set price or better), and trailing stop (activation price trails market price by set amount).
Trailing stop orders automatically adjust the activation price as the stock price moves in the investor's favor.

Order Type — Instructions to a broker on how to execute a trade.
Market Order — An order to buy or sell immediately at the best available price.
Limit Order — An order to buy or sell only at a specified price or better.
Stop Order — An order triggered when a stock reaches an activation price.
Stop-Market Order — A stop order that executes at the next available market price once triggered.
Stop-Limit Order — A stop order that executes at a specified (limit) price or better once triggered.
Trailing Stop Order — A stop order where the trigger price moves with the market price by a set amount.

Review and decide which order type best fits your investment strategy before placing a trade.