Stock Order Types: When to Use Market, Limit and Stop Orders

When you buy or sell stocks, you’re doing more than just placing an order. You’re making a decision that could help you get a better price and protect your profits and losses. That’s where stock order types come in. Market orders, limit orders and stop orders each give you different ways to control your trade.

Once you understand how these stock market order types work, you’ll feel more confident placing trades with your brokerage and making smart choices with your investments. It’s a simple skill that can make a big difference over time.

Stock market basics you need to know

Before we dive into the different order types, let’s cover a few important concepts that will help you better understand your options for placing stock market orders.

What are stock order types?

Stock order types are the instructions you give your brokerage or trading app about how to buy or sell shares. The order type you choose helps you decide how much you want to pay and when your trade should go through. You might want to buy or sell right away at whatever price is available, or you might want to wait for a better price. 

Each order type handles these situations differently. You can pick the one that’s right for your trading goal.

What’s the bid price vs. ask price?

When you look at a stock quote, you’ll see 2 prices: the bid and the ask. 

• The bid price is the highest amount buyers currently are willing to pay. When you sell, you typically get the bid price. 
• The ask price is the lowest amount sellers currently are willing to accept to sell it. When you buy a stock, you usually pay the ask price. 

The difference between the bid price and the ask price is called the spread. 

The order type you choose will determine whether you’ll pay the current market price, wait for your preferred price or something in between.

How do stock market orders get filled?

When you place an order, it goes into a queue with other orders. The stock exchange matches buyers and sellers based on the pricing and timing instructions in your order. If the price matches what you asked for, your order gets filled, or “executed.” If there’s no match, your order might not go through right away—or at all.

Market orders typically get filled first because they accept whatever price is available. Limit orders that specify your desired price might take longer to find a match, or they could expire unfilled if there’s no match.

If you include “all or none” (AON) instructions in your order, you’re telling your broker to execute the trade only if all the shares can be bought or sold at the same time. This can help you avoid partial fills, which happen when only a portion of your order goes through due to limited availability. AON orders offer you more control over your trade, but again, they may take longer to fill—or they might not fill at all.

Why does timing matter in trading orders?

Stock prices move constantly during trading hours. A stock that costs $50.00 when you start placing your order might be $50.10 by the time you finish. The right order type helps you control how price changes affect your trade.

Some orders are meant to go through right away, while others wait for the price you want. You also can choose how long your order stays active. You might want your order to expire at the end of the day (a “day order”) or until you choose to cancel it or it expires (a “Good ’Til Canceled order” or “GTC”). 

What’s a price gap, and how does it affect market orders?

A price gap is when the trading price jumps, with no trades happening in between. This can happen especially when a stock opens the trading day at a price that’s much higher or lower than its closing price on the previous trading day. 

For some stock order types, price gaps can lead to unexpected outcomes, such as selling at a lower price than intended or not executing at all if the market moves past the trigger price before the order can be filled.

The 4 main stock order types

Now let’s look at 4 common stock market order types. Each one gives you different benefits depending on how you want to buy or sell stocks.

1. Market orders: Get your trade done right away

A market order tells your broker to buy or sell a stock immediately at the best available price. Your order goes to the front of the line. If you’re buying, you’ll pay the current ask price. If you’re selling, you’ll receive the current bid price. The transaction usually happens within seconds.

Market orders work best when you want to buy or sell right away, and you’re not worried about paying a few cents more or receiving a few cents less. They’re great for highly traded stocks where the bid-ask spread is small.

Sample scenario: You want to buy 100 shares of a popular tech stock that’s trading at $100.22 per share. You place a market order, and it gets filled at $100.31 within seconds. You paid slightly more than the quoted ask price, but you own the shares immediately.

2. Limit orders: You set your price

A limit order lets you set the maximum price you’ll pay when buying, or the minimum price you’ll accept when selling. Your order waits in line until the stock reaches your specified price. For example, let’s say you want to buy a stock that’s trading around $100, so you set up a limit order to buy 20 shares at $95. Your order won’t be executed unless the stock price drops to $95 or lower. The order might fill partially if there aren’t enough shares available at your limit price.

Limit orders are perfect when you have a specific price target and are willing to wait for it. They’re especially useful for volatile stocks or when you want to buy during a market dip.

Sample scenario: You want to buy 50 shares of a stock that’s currently $105 per share, but you think it’s overpriced. You set a GTC limit order at $100. Two weeks later, the stock pulls back to $100 and your full order is executed. You got the price you wanted on the transaction by being patient.

3. Stop orders: Protect yourself from big losses

Stop orders can help you protect your investments when the market moves in the wrong direction. They’re like a safety net for your open positions to help limit losses or lock in gains. 

With a stop order, you set a sell price, and if the stock hits that price, then the order turns into a market order and immediately gets filled. This can help you avoid large losses without having to monitor the stock market closely all day long. You can also use stop orders to lock in profits if the stock starts to fall back after going up.

Sample scenario: You bought 50 shares of a popular tech stock at $80, and it’s now worth $120. You set a stop order at $110 to protect most of your gains just in case the price starts to drop. If the stock drops to $110, your shares will sell automatically and lock in a profit of $30 per share.

4. Stop-limit orders: A hybrid approach

A stop-limit order combines features from stop orders and limit orders. You set two prices: a stop price that triggers the order, and a limit price that controls the execution of the trade. When the stock hits your stop price, the order becomes a limit order instead of a market order. This means you’ll sell only if you can get your limit price or better. You get the protection trigger of a stop order with the price control of a limit order.

Stop-limit orders work well when you want to protect your investments from big losses and set your sale price. They’re helpful in volatile markets in which regular stop orders might execute at much lower prices than expected.

Sample scenario: You own 100 shares of a stock that’s trading at $55 a share. You set a stop-limit order with a stop price of $50 and a limit price of $49. If the stock drops to $50, your order activates but will sell only if someone is willing to pay at least $49. If the stock experiences a price gap and drops from $50 straight down to $45 with no trades in between, your order won’t execute. You’d end up keeping your shares but could potentially face larger losses if the price doesn’t rebound later to your desired selling price.

How timing affects stock market orders

When you place an order, it isn’t just about picking the right type. It’s also about understanding how long your order will stay active and when it might be executed.

US stock market trading hours

The stock market is open Monday through Friday, 9:30 am-4 pm ET. Some brokers let you place orders before or after market hours, but there are usually fewer buyers and sellers around during these times. This can mean wider bid-ask spreads and more price volatility.

If you place an order when the market is closed, it will wait in line until trading starts again. A lot can happen overnight—earnings reports, news events or global market moves—so your order might execute at a very different price than you expected.

Day orders vs. Good ’Til Canceled (GTC) orders

Most orders come with a time limit. A day order expires at the end of the trading day if it doesn’t get filled. If you place a limit order to buy a stock at $95 a share on Monday morning and the stock doesn’t reach that price by market close at the end of the day, then your order will expire. If you want to try again, you could set up another day order for the next trading day.

GTC limit orders stay active until you cancel them or they get filled. These orders can last for weeks or even months, depending on your broker’s rules. Many brokers will automatically cancel GTC orders after about 30 to 90 days.

Stock market volatility

During busy or stressful market days, prices can jump around much more than usual. Your limit order that seemed reasonable yesterday might be unattainable today if the stock price has moved far away from your target.

Stop orders can be tricky during volatile periods. A stock might briefly dip below your stop price due to a temporary selloff, trigger your order and then bounce right back up. You could end up selling at the worst possible time.

Tips for understanding and managing stock orders

Here are some practical tips that can help you use different order types and timing effectively:

• Research before setting limit prices. Look at the stock’s recent trading range. For example, if a stock normally trades between $48 and $52 a share, a limit order set to buy at $35 probably won’t get filled anytime soon.
• Look at the bid-ask spread. If there’s a wide gap between the two prices, you might want to place your limit order closer to the middle of the spread rather than at the extreme ends.
• Monitor your open orders regularly. Keep track of your pending orders, especially GTC orders that can stay active for weeks. Set reminders to review them frequently as market conditions change.
• Be empowered to cancel orders. If you placed a limit order for a stock you’re no longer interested in, cancel it. If you set a buy order at $50 a share but the stock has run up to $60 on good news, you might want to cancel the order and reassess.
• Start small. If you’re new to different order types, practice with smaller positions first. This lets you see how each order type behaves without risking large amounts of money.

5 common stock order mistakes to avoid

Even experienced investors can make order mistakes. Here are some of the most common mistakes people make when placing orders and top tips to avoid them:

Mistake 1: Using market orders during volatile times. 

When the market is jumping around, market orders can be filled at prices that are much higher or lower than you expected. If you see big price swings, consider using limit orders instead to help better control your costs.

Mistake 2: Setting unrealistic limit prices. 

Don’t set your limit orders too far from the current market price just because you want a great deal. A stock that’s trading at $100 a share probably won’t drop to your $75 limit order in the near future. Be realistic about what prices are achievable.

Mistake 3: Forgetting about your GTC orders.

It’s easy to place a GTC order and forget about it for weeks. You might end up buying a stock you no longer want or selling shares when your investment strategy has changed. Review your open orders regularly.

Mistake 4: Placing stop orders too close to the current price.

If you set your stop order too close to the current price, normal market fluctuations might trigger it unnecessarily and kick you out of a position you aren’t ready to give up. Let your investments have some breathing room while still protecting against major losses.

Mistake 5: Not understanding partial fills.

Sometimes your order might fill partially if there aren’t enough shares or buyers available at your price. Find out how your brokerage handles partial fills so you can decide whether to accept them or cancel the remaining order.

Start trading in the stock market with confidence

Understanding stock order types is just one piece of building a successful investment strategy. At Navy Federal, we’re here to support your financial goals with tools and guidance that make investing easier. Learn more about investing topics and strategies with our MakingCents investing resources. And, check out Digital Investor—our easy-to-use trading platform—or connect with one of our financial advisors for personalized investment guidance.