When you tell your broker to buy or sell
a stock at the current price, called the market price, you are giving a
market order. The price you pay is usually the same as or close
to the quote you're given when you place the order, depending
on how quickly the transaction is handled and how actively the
stock is traded.
That's an order
If you think the price of the stock you want
to trade is going to change, you can place a stop order or a limit
order.
A
stop order
instructs your broker to buy or sell once the stock
hits a specified target price, called the
stop price.
Stop orders are usually placed to limit losses
or protect profits. Their downside is that when the stop price
is reached, your order becomes a market order and is executed
at the current market price. That means that the price of the
stock may change between the time the stop price is reached and
the time your broker makes the trade.
A
limit order
instructs your broker to buy or sell a stock only
at a specific price, called the limit price. A limit order doesn't
become a market order, so you won't pay more or sell for less
than you want. But if a price changes quickly, your order may
not be acted on even if the stock price was actually at the limit
for a time.
You might also give a
stop-limit order, instructing your broker to buy or sell when the
stock hits a certain target — the stop price — but not
to pay or accept more than a certain amount — the limit price.
A stop-limit order can protect you against a rapid price increase,
but you run the risk that your order won't be filled.
When you give a stop or limit order, your
broker will ask if you want a
good 'til canceled (GTC)
or
day order.
A GTC stands until it is filled, you cancel it, or the
firm's time limit expires. A day order is canceled if it
isn't filled by the end of the trading day.
