Order types: market, limit and stop

An order is an instruction you send to your broker. It tells them what to buy or sell, how much, and on what terms. The type of order you choose decides whether you get filled, and at what price.

Beginners often lose money on order mistakes before they ever lose on a bad idea. A few minutes spent on these basics will save you that.

The four basic orders

Market order. Buy or sell right now at the best price available. As the SEC's investor site puts it, a market order guarantees execution, but not the price. In a calm, busy market, the gap is usually small.

Limit order. Buy or sell only at your price or better. A buy limit at 100 fills at 100 or lower. The trade-off is that price may never reach your level, and then you get no fill at all.

Stop order. This sits away from the current price and waits. When price reaches the stop price, it becomes a market order. Traders use a sell stop below the market to cap a loss on a long position. Because it turns into a market order, the fill price is not guaranteed.

Stop-limit order. This becomes a limit order, not a market order, once the stop price is hit. That protects you from a terrible fill. But the SEC notes it may not be executed if price moves away from your limit. For a protective stop, that can leave you in a losing trade with no exit.

Bracket and OCO orders

A bracket order sends your entry with two exit orders attached: a stop below and a profit target above (for a long trade). The two exits are linked as OCO, which means "one cancels the other." When one fills, the platform cancels the other.

Brackets matter because they put your stop in the market the moment you enter. You don't have to type it in while price is moving. That is one less decision to make under stress.

Slippage

Slippage is the difference between the price you expected and the price you got. It mostly hits market orders and stop orders.

Here is a worked example. You buy one MNQ contract and place a stop 20 points below your entry. That risk is 20 times $2, or $40. Price drops fast, and your stop fills 4 points lower than planned. You lose 24 points, or $48. The extra $8 is slippage. It looks small, but over hundreds of trades it adds up.

What happens in a fast market

Around big news, such as an economic report, prices can jump several points between trades. Buyers and sellers pull their orders, and the market gets thin. In those moments, market and stop orders can fill far from where you expected. Limit orders may not fill at all.

A few habits help. Know when scheduled news is due and decide in advance whether you will trade it. Use a hard stop every time, and accept that it may slip. Never move a stop farther away because you hope price will come back.

The takeaway

Market orders give you a fill but not a price. Limit orders give you a price but not a fill. Stops become market orders, so they can slip, and stop-limits can fail to fill. Brackets with OCO exits put your plan in the market from the start. Practice all of them in a simulator before you use real money.

Do this today

• Place a market, a limit and a stop order in a simulator and write down where each one filled.
• Set up a bracket order with a stop and a target, and confirm that filling one cancels the other.
• Look up today's economic calendar and note the times you would avoid placing new trades.

Check yourself

Answer each one in your head, then open it to check.