Order Types

When you buy or sell investments, the type of order you place can affect your results. The three most common order types are market orders, limit orders, and stop-loss orders.

A market order tells your brokerage to buy or sell immediately at the best available current price. This is the fastest way to execute a trade, but you may not know the exact price until after the order fills - especially in a fast-moving market.

A limit order lets you set the exact price at which you want to buy or sell. The order will only execute if the market reaches your chosen price or better. This gives you more control, but your order might not fill if the market never hits your price.

A stop-loss order is designed to limit your losses. You set a trigger price; if the security reaches that price, a market order is automatically placed to sell. This can help you avoid bigger losses if a stock drops quickly, but in a volatile market, the actual sale price may be lower than your trigger.

You might use a market order if you want to buy or sell right away and the price isn't likely to move much. Limit orders are helpful when you only want to pay a certain price or better, such as when buying a stock that's moving up and down. Stop-loss orders help protect you from large losses if the market moves against you.

Suppose you want to buy shares of a company currently trading at $50. If you place a market order, you agree to buy at the best available price right now, which could end up being slightly more or less than $50, depending on how fast prices are changing. If you use a limit order and set your limit at $49, your order will only go through if the price drops to $49 or lower. This gives you more control, but there’s a chance your order won’t be filled if the price never drops to your limit.