Order Types

Learn about the different order types an investor can use to execute trades.

Main Ideas:

  • 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

Instructor Note:

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.

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