Finding your feet as an investor but thrown by some of the lingo? Here\u2019s what you need to know about the different types of stock market orders, such as \u201cstop loss\u201d and \u201climit\u201d, and how to use them to help you avoid making expensive mistakes.<\/p>
A trading order is an instruction you give your trading platform<\/a> or broker when you want to buy or sell an investment. It allows you greater control because you can set a pre-programmed command. Then, your trading move happens automatically when a price hits the target you\u2019ve specified, meaning you don\u2019t have to sit in front of a screen all day watching prices go up and down and waiting for the right moment to buy or sell. <\/p> You\u2019ll usually pay a fee for certain types of order, which tend to be the more sophisticated ones such as take-profit. Carrying out a trade is known as \u201cexecuting\u201d an order.<\/p> The 3 main orders are: market, limit, and stop orders. But, there are some crossovers and variations within the broader categories.<\/p> This is the most straightforward type. It\u2019s an instruction to make your trade at the next best available price on the market.<\/p> In practice, this next available price could be higher or lower than what you were expecting. Sometimes by a little, and sometimes quite a lot. Stock markets can move quickly and the difference will depend on the volatility and the time of day you make the trade. This difference is known as \u201cslippage\u201d.<\/p> Typically, market orders are the quickest to fulfil, because it\u2019s an easy way to match up buyers and sellers. But, a market order means you forfeit direct control over the trade price.<\/p> A market order is a good option if you want to make a quick trade and you\u2019re not bothered about getting the absolute best deal.<\/p> When you select this, you set a price limit on how much you\u2019re willing to buy or sell an asset for. This means a maximum price for buying or a minimum price for selling.<\/p> The order will only be fulfilled if it can take place at the limit you\u2019ve set, or at a better price if possible.<\/p> This gives you more control over the exact exchange price. But, the trade won\u2019t happen if your target isn\u2019t met.<\/p> This is a friendly relative of the market order. The difference is, you set a specific target price at which the trade converts into a market order.<\/p> Instead of carrying out a trade for an immediate price the market throws your way, you have more control. Depending on whether you\u2019re looking to buy or sell once a price target is met, you can use a buy-stop or sell-stop.<\/p> If you\u2019re setting a stop order, it must be higher than the current price for a buy order and lower than the current price for a sell order.<\/p> A sell-stop order is often referred to as a \u201cstop-loss\u201d order and it can help limit potential losses if prices are plunging.<\/p> This combines a stop order and a limit order to really zero in on your ideal price.<\/p> You open the trade by setting 2 prices: an upper and lower level for your trade to work within. The stop price will be your starting target for the trade, and then your limit will be the outside price target.<\/p> It\u2019s also common to specify a time frame for the trade. The most common time restrictions to use are \u201cday\u201d or \u201cgood-til-cancelled\u201d (GTC).<\/p> A major benefit is that this type of order can give you the best of both worlds, limiting your downside or locking in profits within a range you\u2019re comfortable with.<\/p> The drawback is that if the price moves up or down by a big chunk, falling outside your range before it\u2019s filled, the trade won\u2019t execute.<\/p> For this type, you can set your price to move without exiting your trade.<\/p> To start, you select a percentage or pound amount that\u2019s different to the market price. Then, choose if you want the trailing stop order to convert into a market or limit order.<\/p> If the trade is working out as you hoped, you can continue to profit as the price moves. But, if the wind blows the other way, this order attempts to close the trade when the price reaches your specified difference.<\/p> This is similar to a limit order, except there\u2019s no guarantee on the price. You set a price beforehand, then, if the asset hits it, the trade automatically converts into a market order.<\/p> Doing this helps speed up a trade, but could still lead to slippage. Because, you only control the price that triggers the conversion to a market order. The best market price could then move as the broker attempts to execute.<\/p> You can also use an \u201cLIT\u201d to convert your order into a limit rather than a market order.<\/p> You set your price when opening the trade, and once that\u2019s hit, the trade shifts into a limit order. But, if no one is willing to buy or sell at your price, it\u2019s possible the trade won\u2019t fully execute. It\u2019s possible that your platform may be able to execute some of the trade \u2013 for example if you want to buy 50 shares and your platform holds 20, it might sell you those.<\/p> This does exactly what it says on the tin. A trade will automatically close and take profit once it reaches a specific price level that you\u2019ve set.<\/p> If the price never hits your target, the trade won\u2019t execute.<\/p> To look at this another way, we\u2019ve set out a few trading scenarios that show each type of order in action. We\u2019ve used the ticker for Apple stock<\/a>, which is AAPL.<\/p>Most common trading order types<\/h3>
Market order<\/h4>
Limit order<\/h4>
Stop order, including stop-loss<\/h4>
Less common trading order types<\/h3>
Stop-limit order<\/h4>
Trailing stop order<\/h4>
Market-if-touched order<\/h4>
Limit-if-touched order (LIT)<\/h4>
Take-profit<\/h4>
When to use each type of trade<\/h3>
| Trading order type<\/th> | When to use<\/th><\/tr><\/thead> |
|---|---|
| Market<\/th> | You\u2019re looking to make a quick trade, buying AAPL shares at the latest price.<\/td><\/tr> |
| Limit<\/th> | You want to buy AAPL stock, but only for a certain price. If it costs more than that, you\u2019re not interested.<\/td><\/tr> |
| Stop<\/th> | You set a sell-stop\/stop-loss price to limit your losses. If the AAPL price falls to that level, your broker sells at the next available market price.<\/td><\/tr> |
| Stop-limit<\/th> | You set a sell-stop\/stop-loss price but only to sell your shares within a specified range. This helps to avoid slippage. Ideal if you\u2019re willing to keep holding AAPL stock if you can\u2019t get your desired price.<\/td><\/tr> |
| Trailing stop<\/th> | You buy AAPL stock, confident the price will rise. So, you set a trailing stop order that moves automatically as the price goes up.<\/td><\/tr> |
| Market-if-touched<\/th> | You\u2019re happy to sell your AAPL stock as quickly as possible once it touches a certain price. You don\u2019t mind if the price moves further, you just want out of the trade as soon as possible.<\/td><\/tr> |
| Limit-if-touched<\/th> | You want to sell your AAPL stock if the price goes below a certain level, but only for a price you\u2019re happy with. If you can\u2019t get that price, you will hold on to your shares.<\/td><\/tr> |
| Take profit<\/th> | You want to sell your AAPL stock if it goes up by an exact percentage. Locking in your trade action without any price flexibility.<\/td><\/tr><\/tbody><\/table>How to use a stock market trading order<\/h3>Using these controls can feel daunting when you first want to make a trade. So, here\u2019s a brief step-by-step guide on the basic way to use trading orders:<\/p>
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