Stocks course · Section 1: Stock Market Foundations
Stock Order Types Explained: Market, Limit, Stop and Stop-Limit Orders
How bid, ask and spread work, when to use market, limit, stop, stop-limit and trailing stop orders, and the risks of pre-market and after-hours trading.
Beginner6 min read·6:14 video·Lesson 5 of 26·quiz: 5 questions
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A market order buys or sells straight away at the best price available, a limit order sets the worst price you will accept but may not fill, and a stop order sits quietly until a trigger price trades and then becomes a market order. A stop-limit becomes a limit order instead, which protects the price but may not fill. Choosing the right order, and knowing the bid, the ask and the spread, saves money on every trade you make.
Bid, ask and spread
Every stock has two prices at any moment:
- Bid: the highest price a buyer is offering right now. You sell at the bid.
- Ask (or offer): the lowest price a seller will accept right now. You buy at the ask.
- Spread: the gap between them.
Example
The bid is $49.98 and the ask is $50.02. The spread is $0.04, or 0.08% of the price. If you bought 100 shares at the ask and sold them back at the bid a second later, you would lose 100 x $0.04 = $4 even though "the price" did not move.
The world's largest stocks often have spreads of one cent. Smaller, less traded stocks can have spreads of 0.5% or more, which makes frequent trading in them expensive. Your broker shows the bid and ask, and often the number of shares at each price.
Market orders
A market order says "fill me now at whatever the best price is". It almost always fills, but the price is not guaranteed.
Example
You place a market order to buy 1,000 shares. The order book shows 200 shares at $50.02, 400 at $50.03 and 400 at $50.05. You fill at all three levels: (200 x $50.02 + 400 x $50.03 + 400 x $50.05) / 1,000 = an average of $50.036, not the $50.02 you saw on screen.
That difference is slippage. It grows in fast markets, at the open, around news and in thinly traded stocks. Market orders are fine for small orders in very liquid stocks during regular hours. Avoid them elsewhere.
Limit orders
A limit order sets a price boundary: a buy limit fills at your price or lower, a sell limit at your price or higher.
- Advantage: you never pay more (or receive less) than you chose.
- Disadvantage: if the market never reaches your price, nothing happens. You can also get a partial fill, for example 300 of 500 shares.
Tip
A "marketable limit" is a simple habit that avoids most surprises: to buy, set the limit a few cents above the current ask. It fills at once in normal conditions but cannot run away from you if the price jumps.
Stop orders (stop-loss)
A sell stop is placed below the current price to limit a loss. Nothing happens until the stock trades at or below the stop price; then it becomes a market order. A buy stop sits above the price and is used to enter on a breakout or to cover a short position.
Example
You buy at $100 and set a sell stop at $95, planning to lose $5 a share at most. During the day the stock slides to $95 and you are sold at about $94.95. But if the company reports bad news overnight and the stock opens at $86, the stop triggers at the open and you are sold near $86: a loss of $14 a share, almost three times your plan.
Risk
A stop-loss limits normal losses but cannot protect you from gaps. This is why position sizing must assume that sometimes the loss will be larger than the stop distance, especially around earnings.
Stop-limit orders
A stop-limit has two prices: the stop (the trigger) and the limit (the worst acceptable price). When the stop trades, a limit order is placed.
Example
Stop $95, limit $94. On a slow decline you are sold between $95 and $94. But if the stock gaps from $97 to $90, the order becomes a limit sell at $94 with no buyers that high. It does not fill and you still own a stock that is falling.
Use stop-limits when you care more about price than about getting out, for example to enter a breakout without chasing. For protective exits, many traders prefer a plain stop and accept the gap risk.
Trailing stops
A trailing stop follows the price up (for a long position) by a fixed amount or percentage and never moves down.
Example
You buy at $100 with a 10% trailing stop, so it starts at $90. The stock climbs to $130 and the stop rises to $117. When the stock then falls to $117, the stop triggers and you sell around $117, locking in most of the gain.
Trailing stops are simple, but a fixed percentage ignores how volatile each stock is. The ATR lesson shows how to set the distance by volatility instead.
How long an order stays active
- Day: cancelled at the end of the regular session if not filled.
- Good-till-cancelled (GTC): stays until filled or cancelled, although brokers usually expire such orders after a set period, often a few months.
- Extended hours: some brokers need you to mark an order as eligible for pre-market or after-hours trading.
Pre-market and after-hours trading
Outside the regular session (see the hours table in how the stock market works) fewer people trade, so spreads are wider and prices can jump on small orders. Prices set after hours can reverse at the next open. Many brokers accept only limit orders in these sessions and only trigger stop orders during regular hours. Check your broker's rules before relying on any order overnight.
Quick reference
| Order | Fills? | Price? | Best use |
|---|---|---|---|
| Market | Almost always | Not guaranteed | Small orders in liquid stocks, regular hours |
| Limit | Only at your price or better | Guaranteed | Most entries and exits; all extended-hours trading |
| Stop | Once triggered | Not guaranteed | Protective exits |
| Stop-limit | Only if the limit can be met | Guaranteed | Entries on breakouts; exits when price matters more than certainty |
| Trailing stop | Once triggered | Not guaranteed | Letting winners run with a moving exit |
Pro note
Before every order, read it back as a sentence: "Sell 50 shares, stop at $95, good for the day, regular hours only." Most costly order mistakes are typing errors in quantity, side or price, not bad analysis.
Next: ETFs and index funds, the simplest way to own hundreds of stocks with one order.
Key takeaways
- Buyers pay the ask and sellers receive the bid; the spread between them is a cost on every round trip.
- Market orders guarantee a fill but not a price; limit orders guarantee a price but not a fill.
- A stop becomes a market order when triggered, so a gap can fill you far below your stop.
- A stop-limit protects the price but may never fill while the stock keeps falling.
- Use limit orders in pre-market and after-hours sessions, where spreads are wider and volume is thin.
Quiz: check what you learned
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⚠ Not financial advice — educational signals only. Read the disclaimer.