While stock trading, you’ve probably heard of terms like market orders, limit orders, and stop orders. These are the three main stock order types you’ll need to understand to effectively buy and sell stocks. Each of these orders comes with its own set of advantages, disadvantages, and best-use scenarios.

In this article, we’ll try to understand them in the simplest way possible, so you know exactly how to use them and avoid risky trades.

What is a Market Order?

A market order is the simplest type of order. It’s when you buy or sell a stock at the best available price right now. You get in or out of a trade quickly without worrying about price. For example, if a stock is at $100, your market order will be executed at that price, or very close to it.

This is perfect if you’re in a rush and want to trade immediately. But be careful, because you won’t have control over the exact price. Especially when the market is moving fast, you could end up paying more or getting less than you expected.

Limit Orders: Take Control of Your Price

Now, what is a limit order?

As you can’t control price with market orders, you can use limit orders to set what you’re willing to pay or sell for.

Let’s say you want to buy a stock, but you only want it if the price drops to $95. A limit order will let you set that price, and your order will only execute if the stock reaches or drops below that price.

On the flip side, if you’re selling, you might only want to sell if the price hits $105. This way, you avoid selling too low.

But one thing to remember is there’s no guarantee that your limit order will fill. If the stock doesn’t reach the price you want, the order won’t go through.

Stop Orders: A Safety Net for Your Trades

A stop order is like setting a safety net for your trade. Imagine you already own a stock at $100, but you’re worried it might start to fall. You can set a stop loss at $90. If the stock drops to $90, the stop order triggers, and your stock will be sold at the next available price.

It’s a way to protect yourself from big losses. But remember: once the stop price is hit, the order becomes a market order. So if the price drops sharply, you might sell at a lower price than you expected.

Stop Loss vs. Stop Limit

Here’s where it gets a bit tricky: A stop loss order triggers a market order when the stock hits the stop price. On the other hand, a stop limit order will only trigger if the stock hits the stop price AND is within a limit range.

Let’s say your stop limit is at $90 with a limit of $89.50. If the stock falls to $90, the order is triggered, but the stock won’t sell unless the price stays at $89.50 or higher.

When To Use Which Order?

• Market orders are great for quick trades at the current price.
• Limit orders give you control over the price but don’t guarantee execution.
• Stop orders can protect yoz ur gains or limit your losses, but they might not fill at your exact stop price.