trade

Comparing Order Types

Suppose you bought a stock at $15 a share and its current market price is $25 a share. The chart below shows how you could use different order types to buy at a price you're willing to pay or sell at a price you can live with.

Important note: The scenarios below are making a few assumptions. First, we're assuming that there is a market for the stock being traded. If you are selling but there's no one willing to buy that security (or if you are buying but there's no one willing to sell), the trade may not execute or your order may not fill completely. Another important thing to understand is that it's the market — not you — that decides your price, but you may be able to use a particular order type to give you a little more control.

Your Goal Order Type Resolution Risk
You want to buy more shares, or sell your shares ASAP Market Your order will be executed immediately, as long as the market is open, regardless of price Your price is never guaranteed
You want to buy more shares, but pay less than the current market price Buy Limit @ $20 Your order will be executed immediately if the ask price is $20 or lower The market price may never reach your limit price.
You want to sell your shares to realize a profit if the price is right Sell Limit @ $30 Your order will be executed immediately if the bid price is $30 or higher The market price may never reach your limit price.
You want to limit a potential loss if the stock price drops Sell Stop-Loss @ $20 Your order will become a market order if the bid price reaches $20, and will therefore be executed at the next available price (but there are no price guarantees) If the stock price drops rapidly (or after market hours), you could end up selling for a much lower price than your stop price
A temporary dip in the market price may cause your trade to execute before you’re ready to sell
You want to limit a potential loss, but only if you sell at a particular price Sell Stop-Limit @ $22 Stop; $20 Limit If the bid price reaches $22, your order will become a $20 Sell Limit order, and will execute immediately if the price is at $20 or higher If the stock price drops rapidly, your limit order may never execute, even though your shares are worth much less
A temporary dip in the market price may cause your trade to execute before you’re ready to sell
You want to protect your profit with a Stop order, but if the price continues to rise, you want to maintain your position in that stock and increase your stop price accordingly. Trailing Stop-Loss @ $2 below market price If the price rises, the stop price will rise with it. If the price dips, the stop price will stay the same. If the bid price reaches your stop price, your order will become a market order and will execute immediately. If the stock price drops rapidly (or after market hours), you could end up selling for a much lower price than your stop price
A temporary dip in the market price may cause your trade to execute before you’re ready to sell
You want to protect your profit as with a Trailing Stop-Loss order (above). If the price dips, you want to sell, but only if you can get a particular price. Trailing Stop-Limit @ $2 Stop below market price, $1 limit below stop price If the price rises, the stop price will rise with it. If the price dips, the stop price will stay the same. If the bid price reaches your stop price, your order will become a limit order. If the stock price drops rapidly, your limit order may never execute, even though your shares are worth much less
A temporary dip in the market price may cause your trade to execute before you’re ready to sell
You want to buy or sell at the end of the trading day Market on Close Your order will execute as a market order at 4 PM ET, or whenever the market closes You never know what the price will be at the end of a market day, and you can’t cancel a Market on Close order within 20 minutes of market close