On Thursday, Sam watched RSTU, the stock he graded A in Lesson 42: Pre-Market Gappers, break out at 9:41. He knew where he'd want to be in and where he'd want to be out. What he didn't know was which button to press.

His broker's demo ticket offered market, limit, stop and stop-limit, each with a "Time in ForceTime-in-force (TIF) is an order instruction that tells the broker how long your order should remain active before automatically cancelling — common options include Day (cancel at end of session), GTC (Good Till Cancelled, stays active for wRead definition →" box underneath. Pick the wrong one and the same plan can end at a very different price.

Module 5 is about turning a plan into orders. It starts with the four order types you'll use most.

In 30 seconds

  • A Market OrderA market order is an instruction to buy or sell immediately at the best available price — it guarantees execution but not the price, meaning in fast or illiquid markets you can receive a significantly worse fill than the last quoted price.Read definition → buys or sells right away at the best available price, so it usually fills but the price isn't guaranteed.
  • A Limit OrderA limit order is an instruction to buy or sell a security at a specified price or better — a buy limit will only execute at your price or lower, a sell limit will only execute at your price or higher, guaranteeing the price but not the fillRead definition → buys or sells only at your price or better, so you control the price but it may not FillA fill is the execution of an order — when your buy or sell order is matched with a counterparty and the transaction is completed, you've received a fill.Read definition →.
  • A Stop OrderA stop order (also called a stop-market order) becomes a market order and executes immediately at the best available price once the stock touches or crosses your specified stop price — it guarantees execution once triggered but not the fillRead definition → waits until the stock trades at your stop price, then becomes a market order; it can fill well away from the stop price in a fast move.
  • A stop-limit order becomes a limit order at the stop, which caps your price but may leave you unfilled. For day trading, use DAY orders so nothing carries into the next session.

In this lesson you'll learn what market, limit, stop and stop-limit orders do, the trade-off behind each one, where each order sits relative to the current price, how time in force works and how to place a complete planned trade. If you're new, start with Lesson 34: The Bid-Ask Spread, because every order type deals with the spread differently.

What is an order type?

An order type is the instruction you give your broker about how to buy or sell: right away at whatever price is available, only at a price you choose, or only once the stock reaches a trigger price.

Think of buying a used car. You can pay the sticker price today and drive away (a market order). You can say "I'll pay $9,000 and not a dollar more" and wait for the seller to agree (a limit order). Or you can ask the dealer to call you if the price drops to $8,500, and decide then (a stop order: nothing happens until the trigger).

Every order type comes down to one trade-off: speed or price control. You can be sure you'll trade, or sure of your price, but rarely both.

Need the fill now? Market. Need a defined price? Limit.

What is a market order?

A market order is an order to buy or sell a stock at the best available price, and it usually executes right away, but the price you get isn't guaranteed (Investor.gov, order types).

A market buy usually fills at or near the offer, and a market sell at or near the bid. If the stock is moving fast, or there aren't enough shares at the best price, part of your order can fill at the next price up, and the next. FINRA warns that you may not get the price you saw, especially in fast-moving markets (FINRA, order types).

When a market order makes sense:

  • You must get out now, and the exact price matters less than being out.
  • The stock is very liquid with a one-cent spread and deep size, so the price risk is small.

When it's risky: thin stocks, wide spreads, the first minutes after the open and anything outside regular hours. Many brokers accept only limit orders in pre-market and after-hours sessions anyway (Investor.gov, extended-hours trading); Lesson 11 covers those sessions.

What is a limit order?

A limit order is an order to buy or sell at a specific price or better: a buy limit at $32.10 pays $32.10 or less, and a sell limit at $33.10 receives $33.10 or more.

The trade-off is the mirror image of a market order. You control the price, but the order may never fill if the stock doesn't trade at your price, or if other orders at the same price are ahead of yours in line.

That price control is worth something. In a classic study of New York Stock Exchange orders, Harris and Hasbrouck found that limit orders placed at or better than the current quote performed better than market orders, even after counting the cost of the limit orders that never filled (Harris and Hasbrouck, 1996). That's one reason this course uses limit orders as the default for planned entries and profit targets.

A limit order priced to trade immediately, such as a buy limit at or above the current offer, is called a marketable limit order. It acts like a market order with a price cap: it fills now if shares are available at or below your limit, and stops there if they aren't.

What is a stop order?

A stop order is an order that waits until a stock trades at a price you choose, the stop price, and then becomes a market order.

The most common use is a sell stop below your entry, the stop-loss: if the stock falls to your stop, the order turns into a market sell and gets you out. A buy stop above the current price does the reverse, buying only if the stock rises through a level, such as a breakout.

The catch is in the conversion. Once triggered, a stop is a market order, so the SEC notes it can execute well away from the stop price (Investor.gov, stop orders). In a fast drop, a sell stop at $31.60 might fill at $31.52. If a stock gaps below your stop, it fills wherever trading resumes.

Where to place a stop is its own skill: Lesson 51: What Is a Stop-Loss and Lesson 58: Placing a Stop Correctly cover it.

What is a stop-limit order?

A stop-limit order is a stop order that becomes a limit order when the stop price is reached, so it will only fill at your limit price or better.

That caps the worst price you'll accept. It also means that if the stock drops straight through your limit, the order sits there unfilled while the loss grows. The SEC's bulletin puts it plainly: a stop-limit avoids an unexpected fill price, but it may not execute if the market moves past the limit.

Order
Market
Becomes active
Immediately
Price you get
Best available; no guarantee
Main risk
Fills worse than the quote
Order
Limit
Becomes active
Immediately, waits at your price
Price you get
Your price or better
Main risk
May never fill
Order
Stop
Becomes active
When the stop price trades
Price you get
Market price after trigger
Main risk
Fills away from the stop
Order
Stop-limit
Becomes active
When the stop price trades
Price you get
Your limit or better
Main risk
May not fill at all

For a protective stop on a beginner's day trade, this course leans toward a plain stop (stop-market): the whole job of a stop-loss is to get you out. The cost is that the exit price can be worse than planned.

Where does each order sit, and how long does it last?

Each order sits on a predictable side of the current price: buy limits below it, buy stops above it, sell limits above it and sell stops below it.

Hypothetical: buy limits and sell stops sit below the price; buy stops and sell limits sit above it.
  • Buy limit, below the price: "Buy if it pulls back to my level."
  • Buy stop, above the price: "Buy only if it breaks through this level."
  • Sell limit, above the price: "Take profit at my target."
  • Sell stop, below the price: "Get me out if I'm wrong."

Time in force is how long an order stays active. A DAY order is canceled automatically at the end of regular trading hours if it hasn't filled. A good-'til-canceled (GTC) order stays open until it fills or you cancel it, though many brokers set a time limit (Investor.gov, order types). For day trading, use DAY. A forgotten GTC order can fill days later on a stock you've stopped watching.

Sam places his first paper orders (hypothetical)

On Friday, Sam opens his broker's demo account. RSTU, Thursday's A gapper, is holding above its breakout, and he plans a pullback entry with a $60 risk limit.

Plan
Entry if it pulls back to Thursday's breakout level
Order
Buy limit, DAY
Price
$32.10
Plan
Exit if wrong
Order
Sell stop, DAY
Price
$31.60 (risk $0.50 per share)
Plan
Exit if right
Order
Sell limit, DAY
Price
$33.10 (reward $1.00 per share)
Plan
Size
Order
$60 ÷ $0.50 per share
Price
120 shares (about $3,850)

Hypothetical, in a paper account. The demo charges no commission; real accounts can, and Lesson 16 covers fees.

At 9:52 RSTU dips and his buy limit fills at $32.10. Right away he enters the sell stop and the sell limit. By 11:20 RSTU is at about $32.70, his target hasn't traded, and his shift starts at noon.

He decides to close early. First he cancels his open stop and target, so neither can fire on a position he no longer holds. Then he sends a market sell. (Orders that link a stop and a target so one cancels the other come in Lesson 47.) The screen showed a bid of $32.71. His fill comes back at $32.63, eight cents lower.

Paper result: ($32.63 − $32.10) × 120 = $63.60. A small paper gain, and $9.60 less than the bid he'd seen on screen. That eight cents bothers him more than the gain pleases him.

Leaving the other half of your exit orders open

You're doing it if
You close a position by hand but forget the stop or target still sitting in the system. Later it triggers and opens a position you didn't plan.
The fix
Before closing manually, cancel every open order on that stock. Check your open orders tab before you step away, and use DAY orders so nothing survives the session.

Your turn: place all four order types in paper

Order practice (20 minutes, paper account only)

0 of 6 done

Check your understanding

Check your understanding

You want to buy only if a stock pulls back from $40.20 to $39.80. Which order fits?

Check your understanding

Your sell stop is at $25.00. Bad news hits and the stock trades straight from $25.20 to $24.70. What's the likely result?

Check your understanding

What's the main risk of a stop-limit order used as a stop-loss?

Key takeaways

  • Every order trades speed against price control.
  • Limit orders are the default for planned entries and targets; market orders are for when getting the trade done matters most.
  • A stop price is a trigger. The fill can be worse in a fast move or a gap.
  • Buy limits and sell stops go below the price; buy stops and sell limits go above it.
  • Use DAY orders and cancel leftovers before you step away.

Frequently asked questions

Why didn't my limit order fill when the price touched my limit?
Because other orders at the same price were ahead of yours in line, and the stock moved away before reaching you. Exchanges generally fill orders at the same price in the order they arrived. A touch of your price doesn't guarantee a fill; trading through it usually does.
What happens if my limit order only partly fills?
You own some of the shares you wanted, and the rest of the order stays open until it fills, the day ends or you cancel it. Adjust your stop and target to the shares you actually hold, and decide whether to keep waiting for the rest.
What if I place a buy limit above the current price?
It becomes a marketable limit order and usually fills right away at the best available price, up to your limit. If you meant "buy only if it rises to this level," you wanted a buy stop instead.
Can I change an order after I place it?
Yes, as long as it hasn't filled. Most platforms let you modify the price or quantity or cancel it. Once it fills, it's done; you'd need a new order in the other direction to undo the trade.
Does my stop trigger on the last trade or on the quote?
It depends on your broker and the trading venue. The SEC notes that firms differ on whether a stop is triggered by the last sale price or by the bid and offer, so check your broker's rules before you rely on a stop in a fast stock.

Up next: why did Sam's market order fill eight cents worse?

The bid on Sam's screen said $32.71. His market sell filled at $32.63. Nothing went wrong with his broker; that difference between the price you expect and the price you get has a name, and it happens on almost every market order. Lesson 44: Slippage explains where it comes from and how to keep it small.

Disclaimer

This lesson is for educational purposes only and is not financial advice. No order type removes market risk: market and stop orders can fill at prices different from the quote or stop price, and limit and stop-limit orders may not fill at all. Order handling, triggers and time-in-force rules vary by broker, so check yours. All Sam examples and numbers are hypothetical and in a paper account. Trading involves the risk of loss, and nothing here guarantees any result. For our complete disclaimer, visit https://daytradingtoolkit.com/disclaimer.

Article Sources

This lesson relies on SEC and FINRA investor guidance and peer-reviewed research.