Trade types: market, limit and stop orders with limits

When you’re ready to place a trade, you’ll have to decide how to execute your order. Each order type can be useful under different circumstances or market conditions. We’ve included a quick review.

Market order

You want to buy or sell a security and would be satisfied to pay or receive whatever price the market is offering. This could be at the currently traded level or could be different. You enter a market order and the trade will be filled on the best execution terms available.

You should note that high market volatility or a lack of demand and supply for the stock could result in your order being filled at multiple prices. The average price you get could be far different from the last traded price or the price displayed on your screen¹.

Here's an example: You want to buy BARK stock which is currently trading at $50 (bid) — $50.05 (ask). It’s more important to you that your order is filled than being certain about the price you’ll pay. The price where it’s currently trading is generally acceptable. However, you acknowledge that you may not receive the price you see quoted, especially if the market is volatile. You place a market order to buy 100 shares of BARK. Your order is filled on the best execution terms available at the moment your order is executed in the market.

Wondering what “best execution" means? We direct your order to the exchange or marketplace that has the most advantageous execution terms reasonably available under the circumstances (commonly referred to in securities regulation as the best execution obligation).

Limit order

In contrast to a market order, a limit order specifies a buy or sell price for a security. Your trade will only be executed at the price you specify (or better). Your order may be completely filled with another party if that party is willing to meet your specified price. If that’s not possible, the order may be left unfilled or partially filled until the order is complete, or your specified time limit elapses², or you cancel the balance of the order.

In a volatile market, a limit order allows you some control over the price you pay or receive for a security. This comes with the possibility that your trade won't be executed, or you’ll receive only a partial fill.

Here's an example: You want to buy BARK stock which is currently trading at $50 (bid) — $50.05 (ask). You think the price where it’s currently trading is acceptable, but you don’t want to pay a higher price. You place a limit order to buy 100 shares of BARK at $50. If and when your order is completely filled, your fill price will be no more than $50 per share for 100 shares. Your order might also be partially filled, in which case your fill price will be no more than $50 per share for each share that you end up purchasing.

A sell limit order works the same way. In this case, you want to sell BARK stock, which is currently trading at $50 (bid) — $50.05 (ask). You think the price where it’s currently trading is acceptable, but you don’t want to accept a lower price. You place a limit order to sell 100 shares of BARK at $50.05. If and when your order is completely filled, your fill price will be no less than $50.05 per share for 100 shares. Your order might also be partially filled. If that happens, your fill price will be no less than $50.05 per share for each share that you end up selling.

Stop order with limit³

A stop-limit sell order is an order designed to help protect your profits or limit your losses. Imagine you purchase a security and expect it to move higher, but you don’t want to lose a lot of money or see all your profit evaporate if it heads lower. You can enter a stop order at a price lower than the current market price. If the security price drops and trades at that price, your order becomes a limit order with instructions to sell at a price you specify (the limit price).

As with a regular limit order, it’s possible that your trade won’t be executed, or you’ll receive only a partial fill, if the security doesn’t trade with sufficient volume at the price you’ve set⁴.

Here's an example: You own BEEP shares, which are currently trading at $50. Although you believe BEEP will move higher, you’re not comfortable holding BEEP if it starts to decline. You place a stop-limit sell order at $48 with a limit of $47. If BEEP trades at $48, your sell order is triggered. You now hold an order to sell BEEP at the best price available, but no lower than $47.

A stop-limit buy order can be used in short selling to protect profits or limit losses. In this case, the stop order price is specified higher than the current price. If the security trades at the stop price, a "limit order to buy" is triggered.

Here's an example: You are short BLIP shares, which are currently trading at $50. Although you believe BLIP will move lower, you’re not comfortable holding BLIP if it starts to rise.

You place a stop-limit buy order at $52 with a limit of $53. If BLIP trades at $52, your buy order is triggered. You now hold an order to buy BLIP at the best price available, but no higher than $53.

That’s a rundown of some basic (and not so basic) order types that you can trade on Investor’s Edge. If you have any questions, please contact us Opens in a new window..

Want to learn more? Check out our guides on Understanding trailing stop limit orders and Understanding short selling.

Trade types: market, limit and stop orders with limits

Market order

Limit order

Stop order with limit3

More helpful resources

Stop order with limit³