Order types: market, limit, stop and stop-loss
How to ask your broker to enter, exit and protect a position, and what can go wrong with each order type.
Market and limit orders
A market order fills immediately at the best available price. It is simple, but in a fast market the fill can differ from the price you saw, which is called slippage. A limit order asks for a specific price or better: a buy limit sits below the current price and a sell limit sits above it. A limit order may never fill if price does not reach it.
Stop orders
A stop order becomes a market order once price reaches a trigger level. A buy stop sits above the current price and is often used to enter a breakout. A sell stop sits below the current price and is used to enter a breakdown, or to exit a long position if price falls.
Stop-loss and take-profit
A stop-loss order closes a position at a level that limits your loss. A take-profit order closes it at a level where you are happy to take your gain. Both are attached to an open position. A stop-loss is only as good as the fill: in a gap or a news spike, the price at which it closes can be worse than the level you set. A trailing stop moves with price in your favour and locks in gains as the trade progresses.
PipLadder's ladder does not use a stop-loss on each rung. Its exit is a close-all level for the whole basket, which is why the risk planner matters so much. Understand what happens to your position if price keeps moving against you before you use any order type with a ladder.
Key takeaways
- Market orders fill now, but the price can differ from what you expected.
- Limit orders control price but may never fill.
- Stop orders trigger a market order at a level and are useful for breakouts and protection.
- A stop-loss can fill worse than planned during gaps and news.