Understanding Order Types: Market vs Limit Orders
Master the different ways to buy and sell stocks so you never overpay or miss an opportunity.
⏱️ Time: 15-20 minutes 💰 Cost: Free (knowledge that saves you money) 📱 Platform: Any device 👤 Best for: Complete beginners about to make their first trade 🦍 Recommended Companion: Sage (patient explanation of concepts)
What You'll Learn
What market orders are and when to use them
What limit orders are and why they protect you
Stop-loss orders for risk management
Stop-limit orders for advanced control
Time-in-force options (Day, GTC, IOC)
Common order mistakes beginners make
How to place each order type on major brokerages
Why This Matters
You're here because:
📊 You're ready to make your first trade
🤔 You see "market" vs "limit" and don't understand
💸 You don't want to overpay for stocks
😰 You're afraid of making an expensive mistake
🎯 You want to understand before clicking "Buy"
Good news: Order types are simple once explained. This knowledge will save you money on every trade for the rest of your investing life.
Reality check:
Wrong order type can cost you hundreds of dollars
Beginners who don't understand orders often pay 2-5% more than they should
5 minutes learning this = thousands saved over lifetime
The Stock Market Basics (Quick Primer)
How Stocks Trade
The stock market is like eBay for stocks:
Sellers list prices they'll accept
Buyers offer prices they'll pay
When buyer and seller agree on price, trade happens
Two key prices at any moment:
1. Bid (What buyers will pay)
The highest price someone is willing to pay RIGHT NOW
Example: $99.50
2. Ask (What sellers want)
The lowest price someone is willing to sell RIGHT NOW
Example: $100.00
The spread:
Difference between bid and ask
In this example: $0.50 spread
Narrow spread (1-2 cents) = very liquid stock
Wide spread ($1+) = less liquid stock
Example: Apple Stock (AAPL)
Right now:
Bid: $175.50 (highest buy offer)
Ask: $175.52 (lowest sell offer)
Spread: $0.02 (2 cents - very liquid)
Last trade: $175.51
What this means:
If you buy with market order: You pay $175.52 (the ask)
If you sell with market order: You get $175.50 (the bid)
If you use limit order: You can try for price in between
Order Type #1: Market Order
What It Is
Market Order = "Buy/sell immediately at whatever the current price is"
You're saying:
"I want this stock RIGHT NOW"
"I don't care about the exact price"
"Execute as fast as possible"
How It Works
When you place a market order:
Your broker receives the order
Broker looks at the ask price (if buying) or bid price (if selling)
Executes immediately at that price
You own the stock within seconds (during market hours)
Example:
Apple is trading at $175.50
You place market order to buy 10 shares
Broker buys at current ask price: $175.52
Total cost: $1,755.20
Trade happens instantly
When to Use Market Orders
✅ Good for:
Highly liquid stocks (large companies)
Apple, Microsoft, Amazon, Google, Tesla
Bid-ask spread is 1-2 cents
Price won't change much between click and execution
When speed matters more than price
Breaking news and you want in NOW
Dividend deadline and you need to own stock today
You're dollar-cost averaging and don't care about pennies
When you're buying ETFs during market hours
VOO, VTI, SPY are extremely liquid
Spreads are tiny
Market orders are fine
When the spread is tiny (1-5 cents)
You'll pay a few pennies more
Not a big deal on large purchase
Example: Paying $175.52 instead of $175.50 on a $175 stock = 0.01% difference
When NOT to Use Market Orders
❌ Avoid market orders for:
Small, illiquid stocks
Low trading volume
Wide bid-ask spreads ($0.50 - $5.00)
Price can jump between seeing it and buying it
Pre-market or after-hours trading
Very low liquidity
Spreads can be 10x wider than normal
You might pay $101 for a stock that's $100 during regular hours
Volatile stocks during news
Price jumping wildly
Might buy at $100, executes at $105
Use limit order to cap your price
Large orders (thousands of shares)
Can move the market
Might buy first 100 shares at $100, next 500 at $101, etc.
Use limit order for price protection
Market Order Risks
Risk #1: Price Slippage
What happens:
You see stock at $100.00
You click "Buy with Market Order"
By the time it executes (0.5 seconds), price is $100.50
You paid $0.50 more per share (0.5% more)
Example:
Buying 100 shares
Expected: $10,000
Actually paid: $10,050
Overpaid $50 due to slippage
Risk #2: Gap During Pre-Market/After-Hours
What happens:
Stock closed at $100
Pre-market it opens at $105 (gapped up 5%)
You place market order thinking it's $100
Executes at $105
You paid 5% more than expected!
Example:
After-hours, you see stock at $100
You place market order for 50 shares
Expected cost: $5,000
Morning opens at $108 (news came out)
Your order executes at $108
Actually paid: $5,400 - Overpaid $400!
Risk #3: Wide Spread on Small Stocks
What happens:
Small stock with low volume
Bid: $10.00 / Ask: $10.50 (50 cent spread!)
You place market order to buy
Executes at $10.50
Immediately worth only $10.00 (the bid)
Instant 5% loss!
How to Place a Market Order
General steps (all brokerages similar):
Search for stock ticker (e.g., "AAPL")
Click "Buy" or "Trade"
Select "Market Order"
Enter quantity (number of shares or dollar amount)
Review:
Estimated price (current ask)
Estimated total cost
Order type: Market
Click "Submit" or "Buy"
Order executes within seconds
You receive confirmation
Estimated vs actual price:
Estimated price is what you see when reviewing
Actual price is what you pay when it executes (usually same, but can differ)
Difference is usually 1-10 cents on liquid stocks
Order Type #2: Limit Order
What It Is
Limit Order = "Only buy/sell at this price or better"
You're saying:
"I want this stock, but only if I can get it at $X or less"
"Don't pay more than my limit price"
"I'm willing to wait for my price"
How It Works
When you place a limit order:
You specify maximum price you'll pay (if buying) or minimum you'll accept (if selling)
Order sits and waits until:
Stock reaches your price → executes
Market moves away → order stays open until expiration or you cancel
You might not get filled immediately (or at all)
Example:
Apple is trading at $175.50
You place limit order to buy at $175.00
Stock needs to drop to $175.00 for your order to fill
If it drops to $174.90, your order fills at $175.00 (you saved $0.50 per share!)
If it never drops to $175.00, your order never fills
When to Use Limit Orders
✅ Good for:
Every trade (as a beginner)
Protects you from overpaying
You control the maximum price
Prevents slippage and gaps
Illiquid stocks
Wide bid-ask spreads
Low trading volume
Small-cap companies
Always use limit orders here
Large orders
Buying/selling thousands of shares
Don't want to move the market
Limit order caps your cost
Volatile markets
Stock price jumping around
News events causing swings
Protect yourself from spike
When you're patient
Willing to wait for better price
Not urgent to own stock today
Can set and forget
Pre-market / After-hours
Very wide spreads
Low liquidity
Always use limit orders outside regular hours
When NOT to Use Limit Orders
❌ Limit orders might be wrong for:
When you absolutely need to own it today
Dividend ex-date is tomorrow (must own stock before)
Want to participate in earnings immediately
In this case, market order ensures you get it
In a fast-rising market when you're buying
Stock is trending up strongly
Your limit order keeps missing as price rises
You keep chasing the price higher
Might be better to use market order and accept current price
When the spread is 1-2 cents
Limit order saves you pennies
Might not fill and you miss the trade
Sometimes market order's simplicity is worth 2 cents
Limit Order Risks
Risk #1: Order Doesn't Fill
What happens:
Stock is at $100
You place limit order to buy at $99
Stock never drops to $99
Stock goes up to $105
Your order never filled - you missed the gain!
Example:
You wanted to buy Apple at $175
It's currently $175.50
You set limit order at $175.00
Stock goes straight to $180 over next week
You saved $0.50 per share but missed $5 per share gain
Being "too smart" cost you $4.50 per share
Risk #2: Partial Fill
What happens:
You want to buy 1,000 shares at $100
Only 300 shares available at $100
You get 300 shares, order remains open for other 700
Stock rises to $105
You only got 30% of position you wanted
Risk #3: Gap Through Your Price
What happens:
Stock closes at $100
You have limit order to buy at $99
Overnight, terrible news
Stock opens at $95 (gapped down)
Your order fills at $99... but stock is now worth $95
You thought you were getting a deal, but you overpaid!
This is rare but possible.
How to Place a Limit Order
General steps:
Search for stock ticker (e.g., "AAPL")
Click "Buy" or "Trade"
Select "Limit Order"
Enter quantity (shares or dollar amount)
Enter limit price (maximum you'll pay)
Buying: Set at or below current ask price
Selling: Set at or above current bid price
Choose time-in-force (Day, GTC, etc.) - see section below
Review:
Limit price
Estimated cost if filled
Order valid until when?
Submit order
Order stays open until filled, expired, or cancelled
Setting Your Limit Price
Strategy for buying:
Option 1: At the bid (aggressive limit)
Current bid: $175.50 / ask: $175.52
Set limit at $175.50 (the current bid)
Will likely fill quickly
You might save a few cents vs market order
Option 2: Between bid and ask (moderate)
Set limit at $175.51 (middle of spread)
Good chance of filling
Save a penny vs market order
Option 3: Below the bid (patient)
Set limit at $175.00 (50 cents below)
Wait for stock to dip
Might not fill today
Better price if it does fill
Beginner recommendation:
Set limit at current ask price or 1-2 cents below
Likely fills quickly
Protects you from sudden spike
Best balance of protection and execution
Order Type #3: Stop-Loss Order
What It Is
Stop-Loss = "Automatically sell if price drops to $X"
You're saying:
"I own this stock"
"If it drops to $X, sell immediately to limit my loss"
"Protect me from bigger losses"
How It Works
When you place a stop-loss order:
You own a stock (already purchased)
You set "stop price" below current market price
If stock drops to your stop price:
Stop-loss triggers
Becomes a market order
Sells immediately at current market price
Example:
You bought Apple at $175
Current price: $180 (you're up $5)
You set stop-loss at $170
If Apple drops to $170, your stop triggers
Shares sell immediately at market price (~$170)
You protected your gains (sold at $170 instead of riding it down to $160)
When to Use Stop-Loss Orders
✅ Good for:
Protecting gains on winning positions
You bought at $100, now at $150
Set stop-loss at $130
Locks in at least $30/share profit even if it crashes
Limiting losses on losing positions
You bought at $100, now at $95
Set stop-loss at $90
Caps your loss at $10/share (10%)
Prevents "ride it to zero" mistake
Managing risk on volatile stocks
Swing trading or day trading
Want automatic exit if trade goes wrong
Removes emotion from decision
When you can't watch the market
At work, on vacation, sleeping
Stop-loss protects you 24/7
Sells automatically if stock plummets
When NOT to Use Stop-Loss Orders
❌ Avoid stop-losses for:
Long-term buy-and-hold investing
Volatility is normal
Stop-loss gets triggered on routine 10% dip
You get sold out of position you wanted to hold 30 years
Then stock recovers and you missed the rebound
During earnings or major news
Stock can have violent swings
Might gap down 15%, trigger your stop
Then immediately recover to $180
You got stopped out at the bottom
On stocks you want to hold through dips
Long-term conviction in company
Don't mind volatility
Want to buy more on dips, not sell
Stop-loss defeats your strategy
Stop-Loss Risks
Risk #1: Stopped Out During Temporary Dip
What happens:
Stock normally fluctuates 5-10% weekly
You set stop-loss 8% below purchase
Normal volatility triggers your stop
Stock immediately recovers and goes higher
You're out of position you wanted to keep
Example:
Bought Tesla at $250
Set stop-loss at $230 (8% below)
Stock drops to $228 on market-wide dip
Your stop triggers, sells at $228
Next day, market recovers, Tesla at $255
You lost $22/share AND missed the recovery
Risk #2: Gap Down Through Stop Price
What happens:
Stop-loss at $95 (stock currently $100)
Bad news overnight
Stock opens at $85 (gapped down 15%)
Your stop triggers but executes at $85, not $95
You lost more than you thought stop-loss would protect
Risk #3: Stop Hunting
What happens:
Many traders set stop-losses at obvious levels ($95, $100, etc.)
Algorithms and institutions know this
They push price down to trigger stops
Mass selling pushes price lower
They buy at the bottom
Price recovers
You got "stopped out" in a manipulated move
This is controversial but does happen on smaller stocks.
How to Place a Stop-Loss Order
General steps:
Navigate to stock you own in your portfolio
Select "Trade" > "Sell"
Choose "Stop-Loss Order" or "Stop Order"
Enter stop price (price that triggers the sell)
Usually 5-10% below current price
Quantity: All shares or partial
Time-in-force: GTC (good til cancelled) is common for stops
Review and submit
Order stays active until triggered or you cancel it
Setting your stop price:
Conservative (5-7% below):
Protects against moderate drops
Gets triggered more often
Might sell on normal volatility
Moderate (10-15% below):
Allows for normal volatility
Protects against major drops
Common choice for swing traders
Aggressive (20-25% below):
Only triggers on major crash
Won't sell on routine corrections
Good for long-term holders who want catastrophe protection
Order Type #4: Stop-Limit Order
What It Is
Stop-Limit = Stop-Loss + Limit Order Combined
You're saying:
"If price drops to $X (stop price), trigger my order"
"But only sell if you can get at least $Y (limit price)"
"Don't sell me out at terrible price in a crash"
How It Works
Two prices:
Stop price: Triggers the order
Limit price: Minimum you'll accept
Example:
You own Apple at $175
Stop price: $170 (trigger)
Limit price: $168 (minimum sale price)
If stock drops to $170:
Order triggers
Tries to sell at $168 or better
If price quickly drops to $165, order doesn't fill (below your $168 limit)
If stock drops to $170, then bounces to $172:
Order triggered at $170
Fills at $172 (above your $168 limit)
Great outcome!
When to Use Stop-Limit Orders
✅ Good for:
Volatile stocks where you want control
Don't want to be sold at "any price"
Willing to risk not filling if it crashes hard
Prefer to hold through crash than sell at terrible price
Illiquid stocks
Wide spreads
Stop-loss could fill at awful price
Stop-limit protects you from bad execution
When you want more control
Experienced trader
Understand the risks
Accept that order might not fill
When NOT to Use Stop-Limit Orders
❌ Avoid for:
Beginners
More complex
Risk of not filling is confusing
Regular stop-loss is simpler
When you want guaranteed exit
Emergency situation
Must sell at any price
Stop-limit might not fill
Fast-moving markets
Price gaps frequently
Your limit might be too strict
You'll be left holding position you wanted out of
Stop-Limit Risks
Risk: Order Doesn't Fill
What happens:
Stop price: $170
Limit price: $168
Stock crashes from $180 to $160 in minutes
Your order triggered at $170
But price blew past $168 instantly
Order never filled
You're stuck holding at $160
You wanted protection but didn't get it because the limit prevented execution.
Time-in-Force Options
What Is Time-in-Force?
How long your order stays active.
Every order (market, limit, stop) has a time-in-force setting that determines how long it stays open.
Day Order (DAY)
What it is:
Order valid only for current trading day
If not filled by 4pm ET, automatically cancels
Default for most brokers
When to use:
Trying to catch a dip today
Don't want order sitting open overnight
Reevaluating strategy tomorrow anyway
Example:
Monday 10am: Place limit order to buy Apple at $175
Order doesn't fill by 4pm
Order automatically cancels
Tuesday morning: Decide if you want to place new order
Good-Til-Cancelled (GTC)
What it is:
Order stays active for 30-90 days (depends on broker)
Works across days, weeks, even months
Must manually cancel or it expires after 30-90 days
When to use:
Patient investor willing to wait for your price
Stop-loss protection (want it active every day)
Don't want to re-enter order daily
Example:
Place limit order to buy Disney at $90 (currently $95)
Order stays active for 60 days
If Disney hits $90 anytime in next 60 days, order fills
You don't have to remember to re-enter daily
Common for:
Stop-loss orders (want continuous protection)
Patient limit orders (waiting for your price)
Immediate-or-Cancel (IOC)
What it is:
Order executes immediately for whatever quantity available
Any unfilled portion cancels
Used for large orders
When to use:
Advanced traders
Large institutional orders
Want partial fill immediately
Example:
Want to buy 10,000 shares
Only 3,000 available at your price
IOC fills 3,000, cancels the other 7,000
You don't wait around for rest
Most beginners don't need this.
Fill-or-Kill (FOK)
What it is:
Order must fill completely and immediately
Or cancels entirely
All or nothing
When to use:
Advanced traders
Need complete position or none at all
Rare for beginners
Market-on-Open (MOO) / Market-on-Close (MOC)
What it is:
Execute at market price at opening bell (9:30am) or closing bell (4pm)
Guaranteed to fill
Price not guaranteed
When to use:
Want to participate in open/close auction
More liquidity at open/close
Don't mind accepting the resulting price
Common Order Mistakes Beginners Make
Mistake #1: Using Market Orders on Illiquid Stocks
The scenario:
Small stock with $0.50 spread
You place market order for 1,000 shares
Immediately lose 5% due to spread
The fix:
Always use limit orders on stocks with spreads over $0.05
Check bid-ask spread before ordering
Mistake #2: Setting Limit Too Far Below Ask
The scenario:
Stock at $100, you want to buy
You set limit at $95 "to get a deal"
Stock goes to $110 over next month
Your order never filled
You saved $5 but lost $10 opportunity gain
The fix:
Set limit at or near current price (within 1-2%)
Don't try to be "too smart"
Missing the trade is worse than paying $0.50 more
Mistake #3: Stop-Loss Too Tight on Volatile Stock
The scenario:
Buy Tesla at $250
Set stop-loss at $240 (4% below)
Tesla routinely swings 5-10% daily
Stop triggers on normal volatility
Stock immediately recovers to $260
The fix:
Understand stock's normal volatility
Set stop-loss below typical range
10-15% for volatile stocks
5-7% for stable stocks
Mistake #4: Forgetting GTC Orders Are Open
The scenario:
3 weeks ago: Set GTC limit order to buy Netflix at $300
You forget about it
Today: Netflix drops to $300 due to bad earnings
Your order fills
You check account: "Why do I own Netflix??"
The fix:
Track your open orders
Review and cancel outdated GTC orders weekly
Most brokers show "Open Orders" section
Mistake #5: Market Order During Pre-Market
The scenario:
8am (pre-market): See stock at $100
Place market order
Order executes when market opens at 9:30am at $105
You overpaid 5% because pre-market prices aren't "real"
The fix:
Always use limit orders pre-market and after-hours
Or wait for market open (9:30am ET)
How to Place Orders on Major Brokerages
Fidelity - Placing Orders
Market Order:
Search for stock
Click "Trade" > "Buy"
Select "Market" under order type
Enter shares or dollar amount
Review and click "Place Order"
Limit Order:
Search for stock
Click "Trade" > "Buy"
Select "Limit" under order type
Enter quantity
Enter limit price
Select time-in-force (Day or GTC)
Review and click "Place Order"
Stop-Loss:
Go to "Positions" (stocks you own)
Click on stock > "Trade" > "Sell"
Select "Stop Loss" order type
Enter stop price
Select GTC (good til cancelled)
Review and place order
Charles Schwab - Placing Orders
Market Order:
Search ticker
Click "Trade"
Select "Buy"
Order type: "Market"
Enter quantity
Review and submit
Limit Order:
Search ticker
Click "Trade" > "Buy"
Order type: "Limit"
Enter quantity and limit price
Time-in-force: Day or GTC
Review and submit
Stop-Loss:
Navigate to "Positions"
Select stock > "Trade"
Action: "Sell"
Order type: "Stop"
Enter stop price
Time-in-force: GTC
Submit
Robinhood - Placing Orders
Market Order:
Search for stock
Tap "Trade" > "Buy"
Enter dollar amount or shares
Order type: "Market Order" (default)
Review
Swipe up to submit
Limit Order:
Search for stock
Tap "Trade" > "Buy"
Enter shares or dollars
Tap "Market Order" to change
Select "Limit Order"
Enter limit price
Time-in-force: Day or GTC
Review and swipe to submit
Stop-Loss:
Go to stock in your portfolio
Tap "Trade" > "Sell"
Tap "Market Order"
Select "Stop Loss Order"
Enter stop price
Time-in-force: GTC
Review and submit
E*TRADE - Placing Orders
Market Order:
Search ticker
"Trade" > "Buy"
Order type: "Market"
Enter quantity
Preview and Place Order
Limit Order:
Search ticker
"Trade" > "Buy"
Order type: "Limit"
Quantity + limit price
Duration: Day or GTC
Preview and place
Stop-Loss:
Portfolio > Select stock
"Trade" > "Sell"
Order type: "Stop on Quote"
Stop price
Duration: GTC
Preview and place
Webull - Placing Orders
Market Order:
Search stock
Tap "Buy"
Order type: "Market"
Enter shares or dollar amount
Review
Confirm
Limit Order:
Search stock
Tap "Buy"
Order type: Tap to change to "Limit"
Enter quantity and limit price
Time-in-force: Day or GTC
Review and confirm
Stop-Loss:
Go to stock in portfolio
Tap "Sell"
Order type: "Stop"
Enter stop price
Time-in-force: GTC
Confirm
Your First Trade: Step-by-Step
Recommended Approach for Beginners
Use limit orders for your first few trades, even if you pay 1-2 cents more than market price. The protection is worth it while you learn.
Example First Trade: Buying VOO (S&P 500 ETF)
Step 1: Check Current Price
Search "VOO" in your brokerage app
See bid/ask: $425.50 / $425.52
Spread: $0.02 (very tight - good!)
Step 2: Decide Your Order
You want to invest $500
At $425.52: You can buy 1.17 shares (fractional shares)
You'll use limit order for protection
Step 3: Place Limit Order
Order type: Limit
Quantity: $500 worth (or 1.17 shares)
Limit price: $425.55 (current ask + $0.03 buffer)
Time-in-force: Day
Why $425.55? Gives small buffer so order fills quickly, but protects from sudden spike
Step 4: Review
Check all details
Estimated cost: ~$500
Limit price: $425.55
Looks good? Submit!
Step 5: Order Fills
Likely fills within seconds at $425.52
You saved $0.03 per share vs just accepting any price
Order confirmation appears
Step 6: Celebrate!
You're now an investor!
You own a piece of 500 largest U.S. companies
Let compound interest work for you
Success Checklist
Before placing your first order:
✅ I understand market orders (execute immediately at current price)
✅ I understand limit orders (only execute at my price or better)
✅ I know when to use each order type
✅ I understand bid-ask spread and why it matters
✅ I checked the current bid and ask before ordering
✅ I set my limit price at or near the current ask (if buying)
My first order:
✅ I'm using a limit order (recommended for beginners)
✅ I set a reasonable limit price (at or slightly above ask)
✅ I chose appropriate time-in-force (Day or GTC)
✅ I reviewed all details before submitting
✅ I understand this is a long-term investment
After order fills:
✅ I received confirmation of my purchase
✅ I can see the position in my portfolio
✅ I'm NOT checking the price every 5 minutes (long-term mindset!)
✅ I'm ready to hold for years and let it grow
What's Next?
Immediate Next Steps
Before your first trade:
Making your first trade:
Ask Sage for Help
Open Ape AI and ask:
Sage will:
Recommend the right order type for your situation
Help you set appropriate limit price
Explain the reasoning
Walk you through the order step-by-step
Calm your nerves!
The Bottom Line
Order types are simple:
Market Order:
✅ Fast - executes immediately
❌ No price control - might overpay
Use for: Liquid stocks, during market hours, when speed matters
Limit Order:
✅ Price protection - you control maximum cost
❌ Might not fill - could miss the trade
Use for: Everything as a beginner, illiquid stocks, volatile markets
Stop-Loss Order:
✅ Automatic protection - limits losses
❌ Can be triggered by normal volatility
Use for: Short-term trades, risk management, protecting gains
For beginners:
Start with limit orders on everything
Set limit at or near current ask price
Use GTC if you're patient, Day if you're picky
Don't overthink it - the difference is usually pennies
Remember: The best order type is the one you understand and feel comfortable using. Start simple (market or limit), learn the basics, then explore advanced order types later.
You've got this. 🚀
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