Order types and what they promise
Market orders promise execution, limit orders promise price. You never get both promises at once.
The core trade-off
A market order says: fill me now, at whatever the book offers. It guarantees execution but not price. A limit order says: fill me only at this price or better. It guarantees price but not execution.
Every other order type is a combination of those two promises plus a trigger condition. Once you internalise the trade-off, the menu in your broker app stops being intimidating.
Stops are triggers, not shields
A stop order sits dormant until price touches your stop level, then it becomes a market order. In a fast-moving market the resulting fill can be well below your stop — that difference is slippage.
A stop-limit becomes a limit order instead, which protects your price but can leave you unfilled precisely when you most wanted out. Choose deliberately: protection from bad prices, or certainty of exit.
Time in force
Day orders expire at the close. Good-till-cancelled orders persist for days or weeks, which means a forgotten limit can execute on news you never saw. Review resting orders on a schedule.
Worked example
The same exit, three ways
- You own 50 shares bought at $30. You decide to exit if price breaks $27.
- Market order after the break: fills instantly, perhaps at $26.85 in a fast tape. Certain exit, uncertain price.
- Stop at $27: dormant until $27 trades, then becomes a market order — same slippage risk, but automatic.
- Stop-limit, stop $27 limit $26.80: only fills between $26.80 and $27. If price gaps to $25 you stay in, holding a larger loss.
Write down which risk you prefer before you need the order: a worse fill, or no fill at all. There is no option that removes both.
Common misconceptions
“A stop-loss guarantees my maximum loss.”
It guarantees a trigger, not a price. Overnight gaps and fast markets can fill far below the stop.
“Limit orders are always safer.”
An unfilled limit during a sharp move can leave you holding exactly the risk you tried to shed.
Checkpoint