Every buy or sell instruction has two parts: the order type, which sets the price terms, and the time in force, which sets how long the order stays live. Together they decide whether you trade at all, at what price and when. Most of the time the choice barely matters, because a heavily traded stock in the middle of the session has a spread of a penny or two. It matters a great deal when prices move fast or jump overnight, which is where the worked fills below concentrate. For the step-by-step of opening an account and placing a first trade, see how to buy stocks, and for the rest of the basics, the stocks hub.
What is a market order?
A market order trades immediately at the best price on offer, so it nearly always fills, but you do not know the exact price in advance. FINRA notes that firms generally treat an order as a market order unless you say otherwise. The price on your screen is the last trade or the current quote, and either can change before your order arrives. The quote also has a size. Investor.gov's example is a market order for 1,000 shares when only 500 are offered at $3.00: the first 500 fill at $3.00 and the rest at higher prices. Our stock pages, such as SPY, show the current bid and ask, which tells you how wide the gap is before you choose.
In a calm, liquid market the difference between a market order and the quote is a penny or two. The risk grows at the open, near the close, around news and in thinly traded shares, and in a fast market a market order can fill far from the last price. On August 24, 2015, trading in US stocks and exchange-traded products paused 1,278 times under the limit up-limit down mechanism, 1,058 of them in 327 exchange-traded products, the category that includes index funds such as QQQ. SEC staff found that in NYSE Arca's reopening auctions where sellers outnumbered buyers, market orders made up 94% of the sell imbalance.
How does a limit order work?
A limit order sets the worst price you will accept, a maximum to buy or a minimum to sell, and fills only at that price or better. The trade-off is certainty of execution. A buy limit below the current ask waits until a seller comes down to it, and it may never fill if the price rises instead. Even when the market touches your price, orders at the same price that arrived earlier usually fill first, so a touch does not always mean a fill, and a large order can fill in pieces.
A limit priced through the market, such as a buy limit above the current ask, is called a marketable limit order. It fills at once up to the limit, which gives most of the speed of a market order with a ceiling on the price. Thin quotes are also why many brokers accept only limit orders in extended-hours trading.
Worked example: A buy limit that fills in pieces
A stock is quoted at $25.00 bid and $25.05 ask, with 300 shares offered at $25.05 and 400 more at $25.08. You enter a buy limit for 500 shares at $25.06.
- 300 shares fill at once at $25.05
- The next offer, $25.08, is above your limit, so the other 200 shares wait
- If a seller later offers at $25.06 or less, the rest fills; if the price climbs, those 200 shares never fill
A market order for the same 500 shares would have bought 300 at $25.05 and 200 at $25.08, an average of (300 × $25.05 + 200 × $25.08) ÷ 500 = $25.062.
What is the difference between a stop order and a stop-limit order?
A stop becomes a market order when the stock reaches the stop price; a stop-limit becomes a limit order, which caps the price but may never fill. A sell stop sits below the current price, usually to limit a loss or protect a gain. A buy stop sits above it, often to cover a short sale, which short selling explained covers. Investor.gov stresses that the stop price is not a promised execution price: once triggered, the order competes like any other market order. Firms also differ on what triggers a stop. Some use the last sale and others use the bid or ask, and a dip that reverses within seconds can still set one off.
Where the order lives matters too. The NYSE stopped accepting stop and good-'til-canceled orders in February 2016, and NYSE Arca does not accept stop orders either, so in practice brokers usually hold stops on their own systems and send a market or limit order when the trigger hits. FINRA Rule 5350 lets a firm accept stop orders but does not require it to, and FINRA's investor guidance on volatile markets makes the same warning as Investor.gov: a triggered stop can execute well away from the stop price.
A stop-limit adds a second price. Investor.gov's example is a sell stop at $3.00 with a limit at $2.50: once the stock trades at $3.00, the order can sell only at $2.50 or higher. That protects against a disastrous fill, but it can leave you holding the stock while the price falls straight through both levels.
How does a trailing stop order work?
A trailing stop keeps its trigger a fixed amount or percentage below the stock's highest price since you placed it, rising with the stock but never falling. A sell trailing stop is set as a dollar amount or a percentage. When the stock makes a new high, the trigger moves up by the same amount; when the stock falls, the trigger stays put, and a fall to the trigger turns the order into a market order.
Worked example: A $2 trailing stop and a 5% trailing stop
You own 100 shares trading at $60.00.
- $2 trail: the trigger starts at $58.00. The stock climbs to $66.00, so the trigger moves to $64.00. When the stock slips back to $64.00, the stop triggers, and the shares sell at the next bids, say $63.90, for 100 × $63.90 = $6,390.
- 5% trail: the trigger starts at $60.00 × 0.95 = $57.00 and rises to $66.00 × 0.95 = $62.70 at the peak. The same pullback to $64.00 does not trigger it; a drop to $62.70 would.
The tighter trail kept more of the rise, but it is also more likely to be set off by ordinary day-to-day swings.
Trailing stops carry every risk of a regular stop, including the gap risk shown in the table further down.
How long does an order stay open?
A day order expires when the regular session closes at 4 p.m. ET; a good-'til-canceled order stays open until it fills, you cancel it or the firm's cutoff arrives. That instruction, called time in force, also decides how the order may fill: all at once, in pieces, or not at all.
| Instruction | How long it lives | How it fills | Watch out for |
|---|---|---|---|
| Day | Until the regular session ends at 4 p.m. ET | Any amount, at any time during the session | It does not carry into after-hours trading unless you mark it to |
| Good-'til-canceled (GTC) | Until filled, canceled or the firm's time limit | Any amount, possibly over several days | A forgotten order can fill weeks later, after news you missed |
| Immediate-or-cancel (IOC) | An instant | Whatever is available at once; the rest is canceled | A partial fill is normal |
| Fill-or-kill (FOK) | An instant | The whole quantity at once, or nothing | It often fails in thin markets |
| All-or-none (AON) | A day or until canceled | The whole quantity or nothing, but not necessarily at once | It may wait a long time even when part of it could trade |
| On the open or on the close | The opening or closing auction | At the price the auction sets | Firms set entry and cancel cutoffs before each auction |
Investor.gov notes that GTC time limits vary from firm to firm, and FINRA explains that a day order covers only the regular session unless you ask for extended-hours eligibility. Since the NYSE dropped GTC orders, brokers manage them on their own systems. Open orders are also adjusted for corporate actions, as the questions below explain.
How do orders fill in a fast market or an overnight gap?
In a fast fall or an overnight gap, stop orders fill at the next available price, sometimes far below the stop, and limit orders may not fill. The table follows five sell orders on the same 100 shares through two illustrative scenarios. In the fast market, the stock trades at $50.00 at 10:00 a.m., bad news breaks, and within three minutes it trades down to $44.00 before steadying near $45.50, with only a few hundred shares bid at each price on the way down. In the overnight gap, the stock closes at $50.00, the company cuts its forecast after the close, and the next morning it opens at $42.00 and trades between $41.50 and $43.00.
| Order resting before the move | Fast market: $50 to $44 in minutes | Overnight gap: $50 close, $42 open |
|---|---|---|
| Market sell | Entered as the news breaks, it fills in pieces as bids disappear, say at an average of $48.70: $4,870 | Entered after the close, it waits for the open and fills near $42.00: about $4,200 |
| Sell limit at $49.00 | Fills only if buyers pay $49.00 or more; in a drop this fast it may fill partly or not at all | Does not fill, because the stock never trades at $49.00, and you still hold shares worth $42 each |
| Sell stop at $47.00 | Triggers at $47.00 and sells at the next bids, say $46.20: $4,620 | Triggers at the open and sells near $42.00: about $4,200, or $500 below the stop |
| Sell stop-limit, stop $47.00, limit $46.50 | Triggers at $47.00; say 40 shares sell at $46.60 before the price drops through $46.50, and 60 stay unsold | Triggers at the open, but $42.00 is below the $46.50 limit, so nothing sells |
| Trailing stop $3.00 below the $50.00 high | The trigger sits at $47.00, so it behaves like the $47.00 stop: about $4,620 | Same as the stop: sells near $42.00, about $4,200 |
Worked example: What the move did to a $47 stop on 100 shares
- Expected exit at the stop price: 100 × $47.00 = $4,700
- Fast-market fill at $46.20: 100 × $46.20 = $4,620, or $80 less than expected
- Gap fill at $42.00: 100 × $42.00 = $4,200, or $500 less than expected
- Stop-limit in the gap: no shares sold, and the 100 shares are worth 100 × $42.00 = $4,200 at the open, with further falls still possible
Two features of real markets shape these outcomes. During regular hours, the limit up-limit down mechanism holds each stock within a band set off its recent trading price, 5% either way for the largest stocks and wider for the rest, as stock market hours and holidays details. A stock pinned at the edge of its band for 15 seconds is halted for five minutes, and it can reopen well below where it stopped, setting off stops at the new price. Gaps happen when no trading is possible or liquidity is thin: overnight, over weekends and around news released outside the regular session.
What are the risks of each order type?
Each order swaps one risk for another: market orders risk a poor price, limit orders risk no fill, and stop orders risk filling far from the stop.
| Order | Main risk | When it bites | One way to limit it |
|---|---|---|---|
| Market | Paying more, or receiving less, than the price on screen | Opens, closes, news and thinly traded stocks | Use a marketable limit order instead |
| Limit | Missing the trade or getting only part of it | Fast moves away from your price | Set the limit at a price you would genuinely accept |
| Stop | A fill far below the stop, or a trigger from a brief dip | Gaps and sudden drops that reverse | Ask how the firm triggers and routes stops |
| Stop-limit | No fill while the price keeps falling | Gaps through both prices | Leave room between the stop and the limit |
| Trailing stop | Everything a stop risks, plus triggers from normal swings when the trail is tight | Volatile stocks | Size the trail to the stock's usual daily range |
| GTC | A fill long after you forgot the order | Earnings, news and dividends | Review open orders regularly |
| IOC, FOK and AON | No fill at all | Thin markets | Allow partial fills when the exact size is not critical |
A stop order is not insurance. It decides when you sell, not the price, and a gap can skip straight past it. If you need a floor that holds through a gap, the instrument for that is an option, such as a put, which costs a premium; options basics explains how puts work. Thinly traded stocks make every one of these risks worse, and types of investment risk covers liquidity risk more broadly.