Learn about the different order types an investor can use to execute trades.
- A market order executes at whatever price is available in the market
- Limit orders allow for execution when the price reaches a specified level
- Stop orders convert into market orders and execute once a specified condition is met
- Market orders provide near instantaneous transactions, but can lead to slippage
Slippage refers to the difference between the expected price and actual price of a transaction. Essentially, microtransactions may occur while your order request is being sent to the broker's servers, moving the bid/ask and resulting in execution at an unexpected price when using market orders.
I personally use limit orders on about 90-95% of transactions. Only used the market order when it was 4pm EST, the market was seconds from closing, and needed a transaction fast! And never used the stop order - it's mostly used by short-term traders to protect against significant losses.