The order type you choose decides the price you actually get. Most beginners only use market orders and wonder why their fill is worse than the price on screen. This guide explains the main order types and when each one makes sense.
The main order types
| Order | What it does | Main risk |
|---|---|---|
| Market | Buys or sells right away at the best price available | You may get a worse price than expected |
| Limit | Buys or sells only at your price or better | It may never fill |
| Stop (stop-market) | Becomes a market order once a trigger price is hit | Can fill well below the stop in a gap |
| Stop-limit | Becomes a limit order once a trigger price is hit | May not fill at all in a fast drop |
| Trailing stop | A stop that follows the price up by a set amount or percent | Normal swings can trigger it |
Bid, ask and slippage
Every stock has a bid (the highest price a buyer offers) and an ask (the lowest price a seller accepts). A market buy order fills at the ask, and a market sell fills at the bid. The gap between them is the spread. In busy stocks it is a cent or two. In thinly traded stocks and many options, it can be large. Getting a worse price than you expected is called slippage.
Gaps: why stops are not guarantees
If you hold a stock at $100 with a stop at $95, and bad news comes out overnight, the stock may open at $85. Your stop triggers at the open and sells near $85, not $95. A stop-limit at $95 would avoid the low fill, but it might not sell at all while the price keeps falling.
Which order to use
- Buying a large, busy stock in normal hours: a limit order at or near the ask works well and protects you from surprises.
- Trading options: almost always use limit orders, starting near the middle of the bid and ask.
- Protecting an open trade: a stop order, placed where your trade idea is proven wrong. See risk management.
- Getting out fast in an emergency: a market order, accepting the price you get.
Conclusion
Limit orders control price, market orders control speed, and stops control losses, with limits of their own. Practise each type in a paper trading account until you know how they behave.
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