Order types and what each one actually promises

An order is an instruction to your broker. Each type trades certainty of execution against certainty of price, and confusing the two is a common and avoidable cost.

Market orders

A market order promises execution and says nothing about price. In a liquid name during regular hours the gap between the quoted price and your fill is usually a cent or two. In a thin name, or in the first minutes after the open, it can be far larger.

Limit orders

A limit order promises a price ceiling (for a buy) or floor (for a sell) and says nothing about execution. If the market never reaches your limit, nothing happens. This is not a failure of the order; it is the order doing what you asked.

Stop orders

A stop order becomes a market order when a trigger price is reached. It is a tool for exiting a position you no longer want, not a guarantee of the exit price. In a fast market the fill can be well through the trigger.

• Stop-limit orders add a limit to the triggered order, which restores price certainty and removes execution certainty. In a gap down, a stop-limit may not fill at all.