October 3, 2006 2:40 PM
Stock 101: Market Order, Limit Order And Stop Order
There many different order types used to buy and sell stock. There three primary ones are market orders, limit orders, and stop orders.
A market order is an order to buy or sell a stock at the current market price. The trader is not guaranteed to get the exact price they want, but he can be sure the order will take place.
A limit order is an order to buy or sell a stock at a specific price or better. The order remains in place until the trade occurs or a specified amount of time elapses, usually the end of the trading day. The trader is not guaranteed to have their order executed, but they are sure to get the price they want.
Stop orders remain until triggered like limit orders, but they are activated when a stock moves through the trader's specified price. At that point, they become a market order and the trade is executed. They are usually placed to minimize loss associated with a steep drop in share price.
There are also market-with-protection orders. These are market orders that become limit orders if the price of the stock changes drastically between the placing of the order and its execution. They are often used when trading highly volatile stocks to ensure the trader doesn't end up with a price they didn't want.
Stop-limit orders function like stop orders but become limit orders when triggered rather than market orders. They offer greater precision because stop orders can result in very poor trades if the market is very volatile.
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