Money Basics · Lesson 8 of 14
Understand What an Order Can and Cannot Promise
Market, limit, stop and stop-limit orders each trade one risk for another. None of them can promise the exact price you want.
In this lesson
- Compare market and limit orders
- Explain how stop and stop-limit orders behave in a gap
- Define slippage and what makes it larger
An order tells your broker what you want to do. Each order type trades one risk for another, so it helps to know exactly what each one can and can’t promise.
Market order
- Seeks execution at the available market price
- Usually fills quickly in active markets
- The final price may differ from the last price you saw
Limit order
- Sets the most you’ll pay to buy, or the least you’ll accept to sell
- Controls the price
- Might never fill
A market order gives up price control for speed. A limit order gives up the certainty of a fill for price control.
Stop and stop-limit orders
- Stop order — becomes a market order when its trigger price is reached, under your broker’s rules. The stop price isn’t a promised exit price.
- Stop-limit order — becomes a limit order after it triggers. That can leave you still holding the position if the market moves past your limit.
Example Consider this example
You buy a stock at $50 and set a sell stop at $48. If bad news causes the next available price to be $44, your sale could occur near $44 rather than $48.
Slippage
Slippage is the difference between the price you expected and the price you actually received. Gaps, thin trading and fast markets can increase it.
Read the ticket before you send it
Check the symbol and side
Buy or sell, and the exact ticker.
Choose the order type
Market, limit, stop or stop-limit, and know what each one can’t promise.
Check the price fields
The limit or stop price you typed, next to the current bid and ask.
Check quantity and duration
How many shares, and whether the order lasts for the day or until you cancel it.
Preview before you submit
Read the order preview and confirm it matches your plan. Practice this before putting money at risk.
Check your understanding
4 questions. Answer each one, then open “Show answer” to compare.
Show answer
Answer: C. The stop triggers and becomes a market order, so you may sell near $44
Once price passes the trigger, a stop becomes a market order and fills at the next available price. In a gap that can be far below the stop price.
Show answer
Answer: B. Limit order
A limit order fills only at your price or better. If the market never reaches your price, nothing happens.
Question 3 of 4 Put the life of a sell stop-limit order in order, from first to last. Put these in order, first to last.
- Price trades at or through the stop price
- The order becomes a limit order
- It fills only at the limit price or better, or not at all
- You set a stop price and a limit price
Show answer
Correct order:
- You set a stop price and a limit price
- Price trades at or through the stop price
- The order becomes a limit order
- It fills only at the limit price or better, or not at all
A stop-limit adds price control after the trigger. The trade-off is that a fast move past the limit can leave the order unfilled and you still holding the position.
Show answer
Answer: True.
When few orders are waiting near the current price, or prices are moving quickly, the price you get can be well away from the price you saw.
Key takeaways
- Market orders favor speed; limit orders favor price but may not fill.
- A stop price is a trigger, not a promised exit price.
- A stop-limit order can leave you holding a position after a fast move.
- Read the order preview before you submit anything.
Key terms
- Market order
- An order to buy or sell right away at the best available price. It fills fast, but you don’t control the price, which can hurt in fast or thin markets.
- Limit order
- An order that fills only at your price or better. It controls the price but may not fill at all.
- Stop order (stop-loss)
- An order that becomes a market order once price touches your stop price, often used to exit a losing trade at a preset point.
- Stop-limit order
- An order that becomes a limit order once its stop price is reached. It controls the price you accept but may not fill after a fast move.
- Slippage
- The difference between the price you expected and the price you actually got.
- Ticker
- The short symbol that identifies a listed security, such as SPY.
Sources and further reading
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Educational content, not investment advice. Lessons describe how markets and models tend to behave. They don’t tell anyone what to buy, sell or hold. Interactive examples use illustrative sample data, and simulator results are simulated — not actual trading. Options involve risk and are not suitable for all investors.
Risk disclosureCharacteristics and Risks of Standardized Options (OCC) (opens in a new tab)