Market Orders

Market orders are placed without a specified price, and are usually executed as fast as possible at the "best" available price.   No brokerage firm can guarantee the price on a market order.   With a market order, you can be certain that your order will be filled, but you have no control over the execution price on the trade.   In normal market conditions a market order to buy is likely to be filled at the "ask" side of a quotation, and a market order to sell is likely to be filled at the "bid" price.

Limit Orders

Limit Orders specify a price, beyond which the order will not be filled.   If you enter a limit order to buy a stock, and the prevailing price is higher than that limit when your order reaches its destination, the order will not be filled.   Conversely, a limit order to sell will not be executed at anything lower than the specified limit price.   Therefore using a limit order eliminates the surprises that can occur with a market order, but opens up the possibility of missing the market and not executing the trade.   An important characteristic of a limit order is that it is always executed at your limit, or better.

Stop Orders

Stop orders are generally placed "away" from the current price on a stock, and are only activated if and when the stock reaches, or trades through, the stop price.   Sell stop orders are entered below the current price, and buy stop orders are entered above the current price.   Furthermore, stop orders come in two varieties-stop market and stop limit.

• Stop Market - With a stop market order the investor specifies one price-the activation price.   When the stock reaches that price, or trades through it, the stop order converts to a market order and is executed at the best available price as soon thereafter as possible.   There is no assurance that the execution price will be equal to, or even near, the stop price.

• Stop Limit - With a stop limit order there are two price components specified-the activation price and the limit price.   When the stock reaches the activation price, or trades through it, the order converts to a limit order and is executed at the limit (or better, if available.)   There is no assurance that the limit order will be executable since a stock might very well penetrate the stop and the limit, in which case the risk of not being filled arises, just as with a regular limit order.