Order types and how they execute

This is a reference guide. Each section stands on its own, so you can go directly to whichever order type you need. Every order type resolves the same underlying trade-off: certainty of price or certainty of execution, never both.

Market order

Executes immediately at the best available price at that instant. It guarantees the trade happens; it doesn't guarantee at what price.

How it works. Your order enters the book and matches against the best offers on the opposite side until filled. Ask for more shares than exist at the best price and the rest fills at successively worse levels.

Example. You want 500 shares. The book holds 300 at $50.00 and 200 at $50.08. Your order takes both: average price $50.032, not $50.00.

When it makes sense. When getting in or out now is what matters, and the asset is liquid enough that the price barely moves on execution.

When it's dangerous. In thinly traded assets, where the gap between levels is wide, and at moments of peak volatility, where the price may have moved several points between what you saw and what you paid.

Limit order

Executes only at your specified price or better. It guarantees the price; it doesn't guarantee the trade happens.

How it works. You set the maximum you'd pay buying, or the minimum you'd accept selling. Your order sits visibly in the book until someone matches against it.

Example. The stock trades at $50.00 and you place a limit buy at $49.50. If the price never falls that far, your order never fills. If it drops to $49.30, it fills at $49.30 — better than your limit — not at $49.50.

The detail that surprises people: a limit order can fill at a better price than you set, never at a worse one.

Partial fills. If you ask for 1,000 shares at $49.50 and only 400 are available at that price or better, 400 execute and the remaining 600 keep waiting. Many brokers let you configure whether you accept partial fills or want all-or-nothing.

When it makes sense. When the exact price matters more than immediacy, in illiquid assets where a market order could fill far away, and for placing buy orders below the current price waiting for a dip.

Stop order

A conditional order that stays dormant until the price touches a level you set. At that moment it becomes a market order, inheriting all its characteristics: it fills for certain, at a price you don't control.

How it works. You set a trigger price. Until the price reaches it, your order doesn't exist for the market: it sits in the broker's system, invisible to other participants.

The most common use. You bought at $50 and want to limit the loss. You place a sell stop at $45. If the price falls to $45, the order activates and sells at market.

It's also used to enter. A buy stop above the current price buys only if the price clears a given level, rather than buying now.

What to internalise: the trigger price is where the order activates, not where it executes. Those coincide in calm markets and can separate widely in turbulent ones. That's the topic two sections down.

Stop-limit order

Same as the previous one, but on activation it becomes a limit order instead of a market order. It adds a second price: the minimum you'll accept.

How it works. You set two numbers. The trigger activates the order; the limit marks how far you're willing to go.

Example. Stop trigger at $45, limit at $44.50. If the price falls to $45, a limit sell at $44.50 activates. If there are buyers between $44.50 and $45, it fills. If the price collapses straight to $42, nothing executes and you stay in the position.

The trade-off, in one line. With a plain stop you exit for certain but don't know at what price. With a stop-limit you know the minimum price but you might not exit.

The specific risk. It's precisely the scenario where you'd most want to have exited: a sharp, fast collapse. The order protecting your price left you in it at the worst possible moment.

Why a stop doesn't guarantee your price

Because on activation it becomes a market order, and a market order fills at whatever price exists, not the one you'd like. If the price shot past your level without stopping, it fills lower down.

The two situations where this happens

A fast fall with no buyers. The price cuts through your $45 level and keeps falling while your order executes. You end up selling at $44.20 instead of $45.

A price gap. The extreme and most frequent case. The stock closes at $47 and, after overnight news, opens straight at $38. Your $45 stop activates — the price has passed below it — but the first available price is $38, and that's where it fills.

That second case is the one worth understanding properly, and it gets its own section next.

The practical conclusion

A stop is a reasonable safety net, not a guarantee. It sharply reduces the loss in an orderly market, and it doesn't protect against a sudden jump.

Anyone sizing their risk assuming the stop will fill exactly at their level is working with an optimistic number. The chapter on risk covers how to size a position accounting for this.

What a price gap is

A price gap is a jump between two prices with nothing traded in between. The price doesn't fall from 60 to 52 passing through 58, 55, and 53: it appears directly at 52.

Why they happen

Because the market closes. The exchange is shut between one session's close and the next one's open, but the world isn't. News, earnings, political decisions: all of it happens outside hours and gets absorbed at once on the next open.

It's a direct consequence of what we saw in the first chapter: companies publish earnings almost always outside market hours, precisely for that reason. When the session opens, the price has already absorbed the news and never passed through the intermediate levels.

The full example

• Friday, close: the stock ends at $60.
• Saturday: the company announces material news.
• Monday, open: the first trade crosses at $52.

Between $60 and $52 there was no trading. Nobody bought at $57, nobody sold at $54. Any order placed in that band fills at the first available price, which is $52.

Gaps go upward too

Good news produces the same phenomenon in reverse. That has a less obvious consequence: a limit buy order placed below the price can go unfilled forever if the price jumps above it and never returns.

Where you see them most

In individual stocks around earnings releases, in illiquid assets, and in markets with long closing hours. Markets trading nearly around the clock have smaller, more frequent gaps; those closed from Friday to Monday have larger, rarer ones.

The trailing stop

A trailing stop is a stop whose level moves automatically in the position's favour, but never against it. It's set as a distance rather than a fixed price.

How it works. You define a distance, in currency or percentage. The trigger level rises when the price rises, always maintaining that distance, and holds still when the price falls.

Example. You buy at $50 with a 10% trailing stop:

• The level starts at $45.
• The price rises to $60 → the level rises to $54.
• The price rises to $70 → the level rises to $63.
• The price falls to $63 → it triggers and sells.

You entered at $50 and exited at $63, without having to watch anything or decide when to leave.

What it solves. The problem of not knowing when to take profits: the level adjusts itself and protects a growing share of the gain.

What it doesn't solve. It's still a stop, so it inherits every limitation: on activation it becomes a market order and isn't protected against a gap. And too tight a distance takes you out of the position on any normal move in the asset — something you can only calibrate by knowing how much that asset usually moves.

How long an order lives

Every order that doesn't fill instantly has an expiry, and choosing it badly produces two frequent surprises: orders that vanish without warning, and forgotten orders that execute months later.

The usual options:

Validity	What it means
Day	Cancels itself at session close if unfilled
Good till cancelled	Stays active for days or months, until filled or cancelled
Good till date	Stays active until the date you pick
Fill or kill	Executes immediately in full or cancels entirely

The two classic errors. Placing a limit order with day validity, which expires that afternoon, and believing it's still protecting you weeks later. And the opposite: leaving a good-till-cancelled order that fills months on, in a context completely unlike the one that made you place it.

Long-dated orders are worth reviewing periodically, because the reason they were placed may have stopped existing.

Which order type fits each situation

Situation	Order that prioritises it	What it gives up
Filling now in a highly liquid stock	Market	The exact price, though with a minimal spread the gap is small
Filling in a thinly traded stock	Limit	Immediacy: the order waits in the book
Entering only if the price falls to a level	Limit below	That the entry happens at all: if it doesn't fall, there's no trade
Closing a position whatever happens	Stop	The exit price, which is known afterwards
Closing without accepting any price	Stop-limit	The certainty of exiting: it may go unfilled
Following a gain as it grows	Trailing stop	Part of the move, because the level trails the price
Trading near an earnings release	Limit, or none	Wide spread and gap risk: here both options cost

The rule that sums up this whole guide

Every order chooses between two things that can't be had at once: the certainty of filling and control of the price. Market orders and plain stops guarantee the first and give up the second. Limit and stop-limit orders do the reverse. No option avoids both trade-offs, and any platform implying otherwise is oversimplifying.

Related guides: investment taxation in Spain · the dividend, start to finish · Sessions linking here: what happens when you hit buy · what every trade really costs