Stock & Options Order Types Guide: Market, Limit, Stop Orders

There are many different types of orders you can place to enter or exit a trade in the market. The tough part is deciding what kind of order you need to place for the given situation. Below is a description of each order type as well as examples of when you might want to use that specific type of order.

Buy Market
This is an order to buy a stock/option at its current market price. This does not mean you will be filled at the price you are seeing. This type of order will execute these buy orders at the best possible price on the ask until all shares/contracts are filled.

You would want to use this type of order if you are wanting to get into a trade quickly no matter the entry price.

Sell Market
This is an order to sell a stock/option at its current market price. Again, it does not mean you will be filled at the price you are seeing. This type of order will execute these sell orders at the best possible price on the bid until all shares/contracts are filled.

You would want to use this type of order if you are wanting to get out of a trade quickly no matter the exit price.

Buy Limit
Also known as a pending order, a buy limit is an order that will not execute until the price of the stock/option reaches your pre-defined entry price.

This is the order you will want to use most often when buying stocks and options. Buy limit orders will ensure your shares/contracts are filled at your desired entry price.

Sell Limit
As the inverse of a buy limit order, a sell limit is an order that will not execute until the price of the stock/option reaches your pre-defined exit price.

This is the order you will want to use most often when selling stocks and options. Sell limit orders will ensure your shares/contracts are filled at your desired exit price.

Buy Stop
A version of a limit order that allows you to set an order to buy shares/contracts above its current ask price.

You would want to set this type of order if you were short shares/holding put options. You would set this order to ensure if the price of the shares/contracts went up, the order would trigger automatically to ensure risk management on your position.

Sell Stop
Opposite of a buy stop, a sell stop allows you to set an order to sell shares/contracts below its current bid price.

You would want to set this type of order if you were long shares/holding call options. You would set this order to ensure if the price of the shares/contracts went down, the order would trigger automatically to ensure risk management on your position.

Stop/Stop-Loss
Considered one of the most useful orders, a stop loss will allow you to set an inactive order that will be turned into a market or limit order and execute at the best possible price on the bid/ask until all shares/contracts are filled.

You will want to use a stop loss to manage your risk while in a holding shares/contracts. For example if your plan when entering a trade was to get out if you lost around 30% of your initial investment, you can set a stop loss order to sell your position when the price of the shares/contracts fall to 30% lower than your entry price.

Stop Limit
A Stop Limit is similar to a Stop loss with the main difference being that a stop limit will execute only when the price reaches your specified price.

You will want to use a stop limit as opposed to a stop loss when you want to ensure you are getting out at a specific price.

Trailing Stop
The safety net of orders, this is a great way to keep profits in your pocket when you are in a trade that is working out in your favor. A trailing stop is a stop limit order that automatically trails the current market price of the stock/options contract by a predetermined amount. If the price retraces your predetermined amount, the order is executed.

You will want to use a trailing stop when you are profitable on a trade that is still working in your favor. For example, you can set a 10 cent retracement amount and allow the price to keep moving in a favorable direction. When the price reverses to an unfavorable direction in the amount of 10 cents, the order will trigger automatically.

Bid
The amount of money a buyer is willing to pay for shares/contracts.

Ask
The amount of money a seller is willing to accept for shares/contracts.

Spread
The Spread is the difference in price between the bid and the ask for Shares/Contracts.

Good ‘Til Canceled (GTC)
Most brokers will limit the maximum time you can have an open order. Orders can be placed to remain open for a longer period of time. These orders are referred to as GTC or Good ‘Til Canceled orders.

You would want to use GTC orders when you are unsure of when a stock/option will reach a certain price but you want to make sure to get in at that price. GTC orders can be placed to ensure that when (within 90 days) shares/contracts reach your specified price you order will trigger.

Day
Day orders are an alternative option to GTC orders. Day orders will remain active until filled or until market close the day they are placed.

You will want to use day orders when placing orders you would like to remain open for the current day only.

I hope this clears up some confusion that can come from all of the different types of available orders offered by brokers. Using the correct orders for the task at hand can help you trade more efficiently and could provide more potential of staying profitable.

If you have any questions about orders or if there are any order types you would like to see here, send us a message using the form below.

Stay Green!

In This Article

Frequently Asked Questions

What’s the difference between a stop loss and a stop limit order?

A stop loss converts to a market order when triggered, executing at the best available price to get you out quickly. A stop limit only executes at your specified price or better, which means you might not get filled if the market gaps past your limit price.

Should I use market orders or limit orders for options trading?

Use limit orders for most options trades since options can have wide bid-ask spreads, especially on less liquid contracts. Market orders can result in poor fills that eat into your profits before you even start. The only exception is when you need to exit immediately for risk management purposes.

When should I use a trailing stop order?

Use trailing stops when you’re in a profitable trade that’s moving in your favor and you want to lock in gains while still giving the position room to run. They’re particularly useful for momentum plays where you don’t want to cap your upside with a fixed profit target.

Can I use the same order types for both stocks and options?

Yes, all these order types work for both stocks and options, but options require more precision due to time decay and volatility. Your broker platform will have the same order entry interface whether you’re trading shares or contracts.

What happens if my limit order doesn’t get filled?

If the market doesn’t reach your limit price, your order simply remains open until it expires or you cancel it. You can always adjust your limit price closer to the current market if you want to increase your chances of getting filled, but this means accepting a less favorable entry or exit price.

Ready to Trade Smarter?

Master these order types and combine them with solid risk management to take your trading to the next level. Explore our educational resources and trade alerts to accelerate your learning curve.