When you want to place a trade, you need to choose between different order types. The two most important are market orders and limit orders. Each has pros and cons, and the wrong choice can cost you money. In this guide, you'll learn which order type to use when.
Market Order
A market order buys or sells immediately at the best available price right now.
Example: Stock is trading at $50.00 bid, $50.05 ask. You place a market buy order → you buy at $50.05 (ask price).
Advantages or Market Orders
- Instant execution—order gets filled immediately
- Certainty that you'll get your position
- Simple—no need to choose a price
- Perfect for liquid markets
Disadvantages or Market Orders
- Price uncertainty—especially in volatile markets
- Slippage—you might get a worse price than expected
- You always pay the spread (bid/ask difference)
- In illiquid markets, the price can be much worse
Limit Order
A limit order only buys or sells at a specific price or better.
Example: Stock is trading at $50. You place a limit buy order at $49.50. Order only gets filled if the price drops to $49.50 or lower.
Advantages or Limit Orders
- Price control—you know exactly what you're paying
- Better entry prices possible
- No slippage
- You can set it and walk away
Disadvantages or Limit Orders
- Not guaranteed to fill—price might miss your level
- You might miss the trade (price runs away)
- Requires more planning and patience
When Do You Use Which?
Use a Market Order When:
- You want to get in/out or a position quickly
- Liquid market (tight spreads)
- Breakout trade—timing is more important than price
- Stop loss triggers—you want out immediately
- Market hours with good liquidity
Use a Limit Order When:
- Illiquid stock (wide spreads)
- You want entry at a specific level (support/resistance)
- Pre-market or after-hours trading
- Swing trading—timing is less critical
- You're patient and willing to wait for a good price
Other Order Types
Stop Loss Order
Becomes a market order once the stop price is hit. Protects against losses.
Advantages or Limit Orders
Becomes a limit order at the stop price. Gives more control but risks non-execution.
Trailing Stop
Stop loss that automatically adjusts with price movement in a favorable direction.
Fill or Kill (FOK)
Order gets completely filled or immediately cancelled—no partial fills.
Good Till Cancelled (GTC)
Limit order stays active until you cancel it or for up to 90 days.
Common Order Mistakes
- Market order in illiquid stock: Can cost you 2-5% in slippage
- Limit order too far away: Never gets filled, you miss the trade
- No stop loss order: Hoping it works out ≠ strategy
- Market order outside market hours: Extreme slippage possible
Spread and Slippage
Spread: Difference between bid (sell) and ask (buy) price. In liquid markets like EUR/USD: 0.1-1 pip. In illiquid penny stocks: 5-10%.
Slippage: Difference between expected price and execution price. With market orders in volatile markets, this can add up.
For more on order types, check out Investopedia's order types guide.
Conclusion
Choose your order type based on the situation. Day trading in liquid markets? Market orders work fine. Swing trading with specific entry levels? Limit orders. Want to exit a losing trade quickly? Market order (or stop loss). The art is knowing when to use what. Experiment with both, track execution quality in your journal, and develop a feel for which order type works best in your markets. Pay attention to spreads and slippage—they can significantly impact your returns over time.
