Market, limit and stop orders: which order type to use

Choosing the right order type is part of the trade plan. The wrong one can fill you at the worst moment, or not at all.

Market orders

A market order buys or sells immediately at the best available price. It guarantees execution but not price, so in a fast market you may be filled some distance from the last quote.

Pending orders

Pending orders wait for the price to reach a level you set.

• Buy limit: buy below the current price, expecting a dip before the price rises.
• Sell limit: sell above the current price, expecting a bounce before the price falls.
• Buy stop: buy above the current price, expecting a breakout to continue upwards.
• Sell stop: sell below the current price, expecting a breakdown to continue.

An easy way to remember it: limit orders get you a better price than now; stop orders get you in once the market proves it is moving your way.

Limit orders fill at your price or better, but they may not fill at all. Stop orders become market orders once triggered, so they can fill at a worse price in a fast move.

Orders that close a position

• Stop-loss: closes the trade at a set level to cap the loss. It is a stop order, so it can slip.
• Take-profit: closes the trade at a set level to lock in gains. It is a limit order.
• Trailing stop: a stop-loss that follows the price by a set distance as the trade moves in your favour. On MetaTrader 4, trailing stops run in the platform on your computer, so they stop working when the terminal is closed.

Stop-limit orders

Some platforms, including MetaTrader 5, offer buy stop limit and sell stop limit orders. When the price reaches the stop level, a limit order is placed instead of a market order. That prevents a fill at a much worse price, at the cost of possibly not being filled.

Expiry

Pending orders can be good until cancelled or set to expire at a given time. Leaving old pending orders on the platform is a common way to end up in a trade you had forgotten about.

Common mistakes

• Confusing buy limit with buy stop and entering in the opposite scenario to the one planned.
• Placing stops exactly at round numbers or obvious highs and lows, where many other stops sit.
• Using market orders in the seconds around a major release.
• Moving a stop-loss further away once the trade goes against you.

Why stop orders can fill away from their level is explained in bid, ask and slippage.