Order types, explained

The four, and what each guarantees

• Market order. Trade now, at whatever price is available. Guarantees execution, guarantees nothing about the price.
• Limit order. Trade only at this price or better. Guarantees the price, guarantees nothing about executing.
• Stop order. Becomes a market order once price reaches a trigger. Guarantees execution once triggered, at whatever is then available.
• Stop limit order. Becomes a limit order once triggered. Guarantees the price, and can leave you in a position you meant to exit.

Read that list again with the trade off in mind and every difference falls out of it. A market order buys certainty of execution with uncertainty of price. A limit order does the reverse. A stop is a market order with a delayed start, and a stop limit is a limit order with one.

Where the price goes when a market order fills

A market order takes the best price currently offered. If enough is available there, that is the price you get. If not, the order keeps filling at worse prices until it is complete. The gap between the price you saw and the price you got is slippage.

Slippage is not a fee and nobody took it from you. It is the direct consequence of asking for certainty of execution in a market where the resting orders at your price ran out. It grows when the market is moving fast, when the instrument is thinly traded, and around scheduled events, which are precisely the moments people reach for a market order.

Where those resting orders sit, and how thin they can get, is what the guide on liquidity describes.

The price you see and the price you trade

A chart draws one line. A market has two prices at every instant: the best bid, where you can sell right now, and the best ask, where you can buy. The distance between them is the spread, and it is paid on every trade whether or not anything moves.

Which of the two the candle is drawn from depends on the market. On shares and futures the chart plots the last traded price, so both sides sit around it. On most forex and contract for difference platforms the candle is drawn on the bid.

That decides where an order actually triggers. On a long, the stop fires at the bid, which is the line you can see. On a short, it fires at the ask, one spread above the candle, so a wick that stops just short of your level on screen may already have taken you out. A buy limit has the same problem in reverse: the bid has to come one spread lower than the price you typed.

Read it in points, on the instrument you actually trade. Slippage needs movement and turns up occasionally. The spread needs nothing and is paid on the quietest trade of the year.

Why a stop and a stop limit are not the same choice

Both wait for a trigger. What happens after is the whole difference, and it matters most in exactly the situation both are meant for.

A stop becomes a market order. If a market gaps straight through the trigger, the order fills at the first available price, which can be well past the level. You exited; you exited badly.

A stop limit becomes a limit order. If the market gaps through, the limit is not reachable, and the order simply does not fill. You did not exit at all, and you are still in a position that has moved against you.

Stated plainly: a stop risks a worse price than intended, a stop limit risks no exit at all. Neither is safer in general; they fail in opposite directions.

The parts that are not order types

Good til cancelled, day, fill or kill. These are instructions attached to an order, not types. The first two say how long it stays alive. Fill or kill says it must fill in full and at once, or not at all.

Trailing stop. A stop whose trigger follows price at a set distance, and only in your favour: it moves when price makes a new extreme, and it stays where it is when price comes back. Still a stop, with a rule for moving the trigger.

OCO, one cancels the other. Two orders linked so that filling one removes the other. Usually a target and a stop placed together.

None of these change the underlying trade off. They are conveniences layered over the four types above.

Questions people ask

What is the difference between a limit order and a stop order?

A limit order is active immediately and waits for a price at least as good as the one you named. A stop order sits inactive until price reaches its trigger, and then becomes a market order. One waits for a better price, the other waits for a worse one and then acts.

Why did my order fill at a different price?

Because it was a market order and there was not enough available at the price you saw. The rest filled at the next prices in the book. That difference is slippage, and it is largest when the market is fast or thinly traded.

Is a stop limit safer than a stop?

No, it fails differently. A stop can fill far past your level in a fast market. A stop limit will not fill at all in the same conditions, leaving you in the position. Choose according to which failure you can live with.

Does a stop loss guarantee my loss is limited?

It guarantees an exit is attempted at the trigger, not the price you get. If a market gaps past the level, the fill is wherever liquidity resumes. That is why gaps and scheduled events are the moments where a stop does least of what people expect.

Where the levels in a plan come from

Trading AI reads a photo or a screenshot of any chart and returns a trade plan with its levels and its risk: where the idea would be wrong, and what the market would have to do for it to work. Those levels come from the chart in the image. Placing them, and choosing which order type to use, stays with you and your broker.

Why a stop just beyond an obvious high sits where a great many others already are: What is liquidity in trading?

How the distance between those levels is measured: What is the risk reward ratio?

How much room a market normally needs before a stop is inside its noise: What is the ATR?

This page is educational. It is not financial advice, and nothing here is a recommendation to buy or sell anything.