Order types: market, limit, stop, trailing stop loss and good till canceled

An order type is the instruction you give your broker to buy or sell: it sets what matters most to you, being executed right away, not going past a price, or acting only if a level is touched. No order guarantees everything at once. This guide goes through what each order promises and what it does not, with an official source for every definition.

• A market order guarantees execution, not the price.
• A limit order guarantees a maximum or minimum price, not execution.
• A stop order becomes a market order when its stop price is reached: the stop price is not the execution price.
• Good till canceled does not mean forever: each broker sets a maximum duration.

On an order ticket, the drop-down list of types is often what people look at least. They keep the default, click, and find out on the day of a gap open that the order did not do what they thought. Yet the difference between two order types comes down to one question: what are you willing not to control, the price or the execution?

This guide recommends no order and no broker. Names, trigger rules and durations change from one market and one platform to another: for each point the source that was read is named, and your own broker's documentation is what applies to your account.

What each order type guarantees, and what it does not

The SEC's page on types of orders names three orders as the most common: market orders, limit orders and stop-loss orders. The others are combinations of them. The table sums up what the sources cited in this guide say about each.

The table shows a trade-off, not a ranking. Each guarantee is paid for with another one you give up. Knowing which one you are letting go of is the whole point.

The market order: execution, not price

The SEC defines it as an order to buy or sell a security immediately. This type of order guarantees that the order will be executed, but does not guarantee the execution price. It generally executes at or near the current ask (for a buy order) or bid (for a sell order). The SEC adds a useful warning: the last-traded price is not necessarily the price at which your market order will be executed.

It is also the default at many firms: FINRA's page on order types writes that it is the most common type of investor order, and that brokerage firms typically enter your order as a market order unless you specify otherwise. In France, the AMF guide on choosing and placing a stock market order describes it as taking priority over other orders, placed with no price condition and therefore with no control over the price, and calls for caution on volatile stocks.

The name does not cover the same mechanics everywhere. On the Brazilian exchange, B3's page on types of offers describes the market offer as executed at the best price available on the opposite side of the book, and specifies that if it is not filled in full, the remainder is registered at the price of the trade that took place.

The limit order: price, not execution

For the SEC, it is an order to buy or sell a security at a specific price or better: a buy limit order can only be executed at the limit price or lower, a sell limit order at the limit price or higher. Its example: an investor who wants to pay no more than $10 for a share submits a limit order for that amount, and the order will only execute if the price is $10 or lower.

The AMF calls it the most secure type of order, because it lets you buy at a maximum price or sell at a minimum price. It immediately states the price to pay for that: on an illiquid market, this order can be split, or even not executed. A limit order resting in the book is therefore not a position, it is an intention. If the market leaves without coming back to your price, you stay out.

A take profit is most often an order of this type, placed on the right side of the price: a sell limit above the market for a long position. Where to put it and how to calculate it are covered in the take profit and stop loss guide.

The stop order: a trigger, not a guaranteed price

A stop order, which the SEC also calls a stop-loss order, is an order to buy or sell a stock once its price reaches a specified price, the stop price. When the stop price is reached, a stop order becomes a market order. A sell stop is entered below the current market price, generally to limit a loss or protect a profit on a stock you own. A buy stop is entered above the current market price, generally to protect a position sold short.

The consequence is spelled out in the SEC's investor bulletin on stop, stop-limit and trailing stop orders: the stop price is not the guaranteed execution price for a stop order. It is a trigger, and the execution price can deviate significantly from the stop price depending on the liquidity available when the market order executes. The same bulletin flags two other points. A stop order may be triggered by a short-term, intraday price move, at a price substantially worse than the day's close. And brokerage firms do not all use the same standard to decide that a stop price has been reached: some use only last-sale prices, others use quotation prices.

In France, the AMF speaks of a 'trigger threshold' order: as soon as the threshold is reached, it is triggered as a market order, with no control over the execution price, which it considers particularly risky on illiquid stocks or in high volatility. Where to put that level is another question, covered in the guide on what a stop loss is and where to place it. What happens when a whole market gaps at once is covered in the guide to the black swan event.

SL-M orders: the stop-loss market order on Indian platforms

Abbreviations change with countries. In India, the broker Zerodha's help page on stop-loss orders distinguishes two orders. An SL order takes both a price and a trigger price: when the trigger is reached, a limit order is sent to the exchange. An SL-M order, for stop-loss market, takes only a trigger price: when it is reached, a market order is sent and the position is squared off at the prevailing market price. The same page states that the NSE exchange has discontinued the SL-M order type for options. These are the two orders described above, under other names.

The stop-limit order: a bounded price, an uncertain execution

The SEC bulletin defines it as an order that combines the features of a stop order and a limit order: once the stop price is reached, it becomes a limit order that will be executed at a specified price or better. The benefit is that you control the price at which the order can be executed. The other side follows on the same page: as with all limit orders, a stop-limit order may not be executed if the stock's price moves away from the specified limit price.

The two prices do not have to be the same. The SEC's example: a sell stop-limit order with a stop price of $3.00 may have a limit price of $2.50. The order becomes active if the market reaches $3.00, but can only be executed at $2.50 or better. The AMF describes the same order under the name of a 'trigger range' order: a second limit is added to the threshold, and the triggered order may be executed only in part.

On B3, the stop offer is built this way by default. The exchange's page cited above describes it with a trigger price and a limit price, and specifies that once it enters the book, the stop offer is converted into a limit offer. For a buy, the trigger price must be higher than the price of the last trade and the limit price higher than or equal to the trigger price. For a sell, it is the reverse. The page adds that stop offers cannot be registered during an auction.

Buy stop limit: one name, two mechanics

On a stock market, a buy stop limit order mirrors the sell one: a stop price above the market, then a buy limit order that does not buy beyond its limit. It is used to enter on a rise without paying just any price.

In MetaTrader 5, the Buy Stop Limit has the same name and does something else. The general trading concepts in the MetaTrader 5 help describe it as a stop order to place a Buy Limit order: as soon as the Ask price reaches the stop level, a Buy Limit order is placed at the Stop Limit price. And the help specifies that the stop level is set above the current Ask price, while the Stop Limit price is set below the stop level. So the order does not buy on the breakout: it waits for the price to come back to the limit, after the breakout.

One example, for illustration. The Ask price is 100. You place a Buy Stop Limit with a stop level at 105 and a Stop Limit price at 103. If the Ask rises to 105, a Buy Limit appears at 103, and it only buys if the price comes back down to 103 or lower. If the price runs to 110 without turning back, you have bought nothing. The platform's other orders are described in the guide What is MT5?.

Trailing stop loss: a stop price that moves with the market

The SEC bulletin defines a trailing stop order as a stop or stop limit order in which the stop price is not a specific price: it is a defined percentage or dollar amount, above or below the current market price. As the price moves in a favorable direction, the trailing stop price follows it by that amount. If the price moves in an unfavorable direction, the trailing stop price remains fixed, and the order is triggered if the price reaches it. When it protects a position against a loss, traders also call it a trailing stop loss.

One example, for illustration. You buy at 100 and place a sell trailing stop 5 away from the price: the stop price is 95. The price rises to 112, the stop price rises to 107. The price falls back to 107, the order is triggered. If it is a plain trailing stop, it is then a market order, and the SEC recalls in its own example that the execution price may deviate from the stop price. It adds that short-term market fluctuations can be enough to activate it: the distance has to be chosen carefully.

It remains to know where this order lives, and the answer depends on the platform. In MetaTrader 5, the help cited above writes that the Trailing Stop is executed in the trading platform rather than on the server, unlike Stop Loss and Take Profit. So it will not work if the platform is off: in that case, only the last Stop Loss level it set remains active. Other brokers hold their trailing stop on their side. It is a line to read in the documentation before stepping away.

The distance of a trailing stop does not have to be fixed. Some traders move their stop themselves, candle after candle, to the level of an indicator designed for that purpose: the lesson on the Parabolic SAR gives its calculation. It is then no longer an order type, it is a rule for moving an ordinary stop order, with the same execution limits.

OCO and If Done: orders linked to each other

OCO stands for one cancels the other. Saxo Bank's glossary entry on the OCO order sums it up this way: an OCO order really consists of two orders, and if either of the orders is executed because its market conditions have been met, the related order is automatically cancelled. The most common use: a limit target above the price and a stop below it, on the same position. When one is executed, the other disappears, which avoids being left with an orphan order that would open an unwanted position.

If Done names another link: the second instruction only exists if the first one is executed. The 'primary order' entry of the same glossary defines the primary order as the first order to be executed in an if-done contingent order, and specifies that related (secondary) orders will not become active unless this order is executed. The two links combine: an entry order, then, if it is executed, a target and a stop linked as an OCO. That is what the expression If Done OCO covers, and what the same glossary calls a three-way contingent order.

Interactive Brokers' page on its order types describes both under other names. A bracket order brackets a buy order with a high-side sell limit order and a low-side sell stop order. The One-Cancels-All group gathers several orders of which only one is meant to complete: completion of one causes cancellation of the remaining orders, while partial completion causes the group to rebalance. That last detail matters: depending on the firm, a partial fill does not necessarily cancel the other leg.

One point to keep in mind: OCO and If Done are not among the types of offers B3 lists on the page cited above, which sticks to limit, market and stop offers, their variants with protection, the direct offer and the RLP offer. On such a market, the link between the orders is therefore held somewhere other than in the book, by the broker or by the platform. Ask your broker what happens to these linked orders when you close the software, and until when they remain valid.

Good till canceled, day, IOC, FOK: how long an order stays alive

An order that is not executed does not stay in place indefinitely. The SEC's glossary entry on the day order sets out the default rule in the United States: unless an investor specifies a time frame, orders are good only during that trading day. A day order that does not execute during regular trading hours expires, and does not carry over into after-hours trading or the next regular trading day. The AMF writes the same for France: by default, an order's validity is the day.

The SEC's glossary entry on the Good-Til-Cancelled order defines a good till canceled (GTC) order as an order that lasts until the order is completed or canceled. The next sentence immediately corrects the idea of an everlasting order: brokerage firms typically limit the length of time an investor can leave a GTC order open, and this time frame may vary from broker to broker. So the SEC sends investors back to their brokerage firm.

Three official readings show the gap. For the AMF, a good till canceled order is valid for 365 days, and the durations your intermediary allows are set out in the account agreement. Interactive Brokers writes on the page cited above that its GTC orders will generally be canceled automatically in three cases: a corporate action such as a stock split, not logging into the account for 90 days, and the end of the calendar quarter following the current quarter. The MetaTrader 5 help, for its part, describes a GTC order that stays in the queue until it is manually removed.

Between those two extremes sits the dated order. The AMF speaks of a validity to a set date, which ends on that date. The MetaTrader 5 help page on placing orders offers three choices for a pending order: good till canceled, Today for the current trading day, and Specified until a given date. FINRA also mentions market-on-open and market-on-close orders, executed as close as possible to the beginning or end of regular trading hours, or canceled.

That leaves the instructions that bear on quantity, not on time. The SEC's glossary entry on the Fill-Or-Kill order defines it as an order that must be executed immediately in its entirety, otherwise the entire order is cancelled: no partial execution is allowed. Its entry on the Immediate-Or-Cancel order describes an order that must be executed immediately, any portion that cannot be filled immediately being cancelled. The difference therefore lies in partial execution, refused by the first and accepted by the second.

Two worked examples: the same gap, two orders

The figures below are an example built to show the mechanics, not an observed situation. You hold 100 shares bought at 100. You want to limit your loss to 5 per share, or 500. Bad news comes out after the close, and the stock opens the next day at 93, without having traded between 95 and 93.

With a stop order at 95. At the open, the stop price has been passed: the order becomes a market order and executes at the first available price, around 93. The gap with the stop price is 2 per share. The loss is 7 per share, or 700 instead of the planned 500. You are out, lower than planned.

With a stop-limit at 95, limit at 94. At the open, the stop price has been passed: a sell limit order at 94 is placed. The market is at 93, below your limit: nothing executes. If the stock climbs back to 94, you sell at 94 or better, and the loss is 6 per share. If it keeps falling to 88 without trading back through 94, you are still in the position, with an unrealized loss of 12 per share, or 1,200.

Neither order malfunctioned: each did what its definition says. The first held on to execution and let go of the price, the second held on to the price and let go of execution. The case of earnings releases is detailed in the guide on what stocks are and how to trade them.

What to check with your broker

• The orders actually offered. The SEC recalls that stop, stop-limit and trailing stop orders may not be available through all brokerage firms.
• The price that triggers a stop. Last-sale price or quotation prices: the rule changes from one firm to another, and a stop can go off on a price your chart does not show.
• Where the order is held. On the broker's server or in the software open on your computer: in the second case, it stops when the software does.
• The maximum duration of a good till canceled order, and what cancels it before that term.
• What happens on a partial fill in a group of linked orders.

Order types and your trading journal

Tradoshi is a trading journal: it places no orders and replaces neither your broker nor your platform. What a journal brings here is simple. By noting for each trade the price you were aiming for and the price you got, you see the execution gap your orders really cost you, and on which markets or at what times it widens. It is a measure on your own trades, not a general rule.

Frequently asked questions