Investing basics
Market, limit and stop orders: which to use when
What market, limit, stop and stop-limit orders do, how long an order stays open, and how each behaves when a stock gaps or trades outside regular hours.
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The basic trade-off: speed or price
When you place an order with a broker, you are choosing between two things you can’t always have at once: getting the trade done and controlling the price. Each order type strikes that balance differently. Knowing how they behave, especially when markets move fast, helps you avoid fills you didn’t expect.
Every example below uses one hypothetical stock with a bid of $50.00 (the most a buyer is currently offering) and an ask of $50.05 (the least a seller is currently accepting). If those terms are new, How to read a stock quote explains them. Order names and exact rules vary a little from broker to broker, so check your broker’s descriptions too.
Market orders: fill now, at the going price
A market order says “buy (or sell) now, at the best price available.” In a busy stock during regular hours, it almost always fills within moments, close to the quoted price: a buy near the ask, a sell near the bid.
What a market order doesn’t do is promise a price. The quote you saw is only what was on offer at that instant, often for a limited number of shares. If the price moves before your order arrives, or your order is bigger than what is offered at the best price, part of it fills at worse prices. The difference between the price you expected and the one you got is called slippage.
Example
A market order in a thin stock
You place a market order to buy 1,000 shares. Only 300 are offered at $50.05; the next sellers want $50.10 for 400 and $50.20 for 300. Your order fills at all three prices: 300 × $50.05 + 400 × $50.10 + 300 × $50.20 = $50,115, an average of about $50.12 a share, not the $50.05 you saw.
Market orders carry the most risk at times when prices jump around: right at the open, around news, in thinly traded stocks, and in the extended sessions, which many brokers don’t accept market orders for at all.
Limit orders: your price or better
A limit order sets the most you’ll pay to buy or the least you’ll accept to sell. It fills only at your limit price or better. A buy limit at $49.80 won’t fill unless sellers come down to $49.80 or lower; a sell limit at $51.00 won’t fill unless buyers come up to $51.00 or higher.
- The upside: no surprises on price. A limit protects you from slippage and wide spreads.
- The downside: no promise of a fill. If the price never reaches your limit, nothing happens. Your order may also fill only partly, if fewer shares trade at your price than you asked for.
- A middle path: a buy limit set at or a little above the current ask (a “marketable” limit) usually fills straight away but caps how much slippage you can suffer.
Limit orders are the usual choice for thinly traded stocks, wide spreads, large orders and any trading outside regular hours.
Stop orders and stop-limit orders
A stop order waits until the stock trades at a price you choose, the stop price, and then becomes a market order. A sell stop sits below the current price and is often used to limit a loss (hence “stop-loss”). A buy stop sits above it, for example to buy if the price breaks above a level, or to limit the loss on a short sale.
A stop-limit order has two prices. When the stop price is reached, it becomes a limit order at the limit price you set, instead of a market order. That avoids a fill far below your stop, but it means the order may not fill at all if the price moves past your limit.
Some brokers also offer a trailing stop, whose stop price follows the stock up (for a sell) by a set dollar amount or percentage, and stays put when the stock falls.
Risk
Stops in a gap
You own shares bought at $50 and set a sell stop at $45. The stock closes at $47. Overnight, the company reports bad news, and the stock opens at $41. Your stop triggers at the open and becomes a market order, so you sell at around $41, not $45: a loss of about $9 a share instead of the $5 you planned for.
With a stop-limit at $45 and a limit of $44.50 instead, the order triggers but can’t fill, because the stock is trading below $44.50. You still own the shares, and if the price keeps falling, so does their value. Neither order type can guarantee an exit price when the market jumps past it.
Stops can also be set off by a brief dip that reverses within minutes, selling you out at the low. Placing a stop very close to the current price makes that more likely.
How long an order lasts: time in force
Every order also has a time in force: how long it stays open if it doesn’t fill straight away.
| Setting | What it does |
|---|---|
| Day | Expires at the end of today’s regular session if it hasn’t filled. Usually the default. |
| Good ’til canceled (GTC) | Stays open across days until it fills or you cancel it. Many brokers cancel GTC orders automatically after a set period. |
| Immediate or cancel (IOC) | Fills whatever it can at once and cancels the rest. |
| Fill or kill (FOK) | Fills the whole order at once, or none of it. |
Open GTC orders are easy to forget. A limit order you placed weeks ago can fill on a day when you no longer want the trade, for instance after an earnings report has changed the picture. It is worth reviewing open orders regularly.
Orders outside regular hours
The regular US stock market session runs from 9:30 a.m. to 4:00 p.m. ET on trading days. Many brokers also let you trade in the pre-market and after-hours sessions, but with extra rules. Common ones include:
- Only limit orders are accepted.
- You have to mark the order as eligible for extended hours; otherwise it waits for the regular session.
- Stop orders usually trigger only during the regular session.
- Day orders placed in one session may not carry over to the next.
Fewer people trade in those sessions, so spreads are wider and prices can move sharply on small trades. Pre-market and after-hours trading covers how those sessions work.
Which order fits which situation
There is no single right order type. The table sums up the usual reasoning; how much each point matters depends on the stock and on what you care about most.
| Order | Fill | Price | Often used when |
|---|---|---|---|
| Market | Very likely | Not controlled | Busy stock, regular hours, small order, speed matters |
| Limit | Not guaranteed | Your limit or better | Wide spreads, thin trading, large orders, extended hours |
| Stop | Likely once triggered | Not controlled after the trigger | Planning an exit if the price falls to a level |
| Stop-limit | Not guaranteed | Your limit or better | Planning an exit, but unwilling to sell below a floor |
Key takeaways
- Market orders trade quickly but don’t control the price.
- Limit orders control the price but may not fill, or may fill only partly.
- Stops turn into market orders and can fill well past the stop price in a gap; stop-limits may not fill at all.
- Time in force decides how long an order waits; review open GTC orders.
- Outside regular hours, expect limit orders only and wider spreads.
Choosing an order type is about deciding in advance what you’ll accept if the market doesn’t behave the way you expect. Your broker’s order ticket and help pages are the final word on how its orders work.
Try it with real numbers
Check the bid, ask and spread on a ticker page before you trade. After you trade, the journal shows the prices you actually got, fees included. Try it with sample data; no account needed.