Orders and execution
Four order types cover almost every situation. The choice between them decides whether you control price or control certainty of fill.
10 min read · beginner · lesson 4 of 6
What this covers
- Select the appropriate order type for a given intent
- Explain the tradeoff between fill certainty and price control
- Use time-in-force and paired orders correctly
- Place a stop at a level defined by structure rather than by account size
- Explain why a stop is not a guaranteed exit price
The four orders
- Market
- Fills immediately at the best available price. Certain to fill, uncertain on price.
- Limit
- Fills at your specified price or better. Certain on price, uncertain on fill. Used to buy below or sell above the current market.
- Stop entry
- Becomes a market order once price trades through a specified level. Used to enter on a break rather than into one.
- Stop-loss
- Closes an open position once price trades through a specified level. Caps the loss on that position under normal conditions.
Price or certainty
A market order guarantees a position and accepts whatever price the book offers. A limit order guarantees the price and accepts that the position may never open. There is no order type that guarantees both.
The choice follows the intent. Entering because a level broke calls for a market or stop entry, since the level breaking is the reason to act and waiting risks the whole move. Entering because price reached a zone you identified in advance calls for a limit, since the zone is the reason and paying above it removes the point.
The cost of choosing wrongly is asymmetric. A limit that never fills costs an opportunity. A market order into a thin book costs money immediately, and in an illiquid instrument that cost can exceed several days of what the position was trying to make.
Modifiers worth knowing
- Day and good-till-cancelled
- How long a resting order survives. A day order expires at the session close; a good-till-cancelled order waits until filled or pulled. Forgotten resting orders fill at times nobody intended.
- Fill or kill, immediate or cancel
- Instructions that refuse a partial fill, or accept what is available and cancel the rest. Useful when a half-sized position is worse than none.
- Trailing stop
- A stop that follows price by a fixed distance as the position moves in favour, and stays put when it moves against. Automates giving back a fixed amount of an advance.
- One cancels the other
- A target and a stop submitted as a pair, where filling one removes the other. Prevents the position being closed twice or the stop resting after the target hits.
Placing a stop
Identify the level that voids the read
Find the price at which the reason for the position no longer holds. Below the swing low that defines an uptrend, or above the zone that was supposed to cap price.
Add room for noise
Place the stop past that level rather than exactly on it. Prices routinely trade a short distance through a level and reverse. A stop sitting exactly at the obvious level is the one most likely to be reached first.
Size the position to the distance
The stop distance is now fixed by structure. Position size becomes the variable that brings the loss down to the amount you accepted before entering. This ordering matters and is covered in the position sizing lesson.
Leave it alone
The stop was placed where the analysis fails. Moving it further away because price approached it discards the only pre-committed decision in the position, and it is made at the worst possible moment to make it.
Stops and gaps
A stop-loss caps loss under normal conditions. It does not guarantee the exit price. Markets gap over weekends and around unscheduled events, and a stop triggers at the first available price past the level, which can sit well beyond it.
This is one reason position size matters more than stop placement. A gap through a stop on a modest position is a manageable loss. The same gap on an oversized position is not.
Some venues offer a guaranteed stop that does hold through a gap, charged as a wider spread or an explicit fee. That is insurance with a price attached, and whether it is worth paying is a decision about the instrument rather than a default.
Key takeaways
- Market orders control fill. Limit orders control price. No order controls both.
- Stop placement follows the level that invalidates the reason for the position.
- Place stops past the obvious level, not on it, and then leave them where they are.
- Paired target-and-stop orders prevent a position being closed twice or a stop resting after the target fills.
- A stop caps loss under normal conditions and does not survive a gap intact.
Common mistakes
- Setting the stop at the distance the account can afford instead of the level that voids the read, then wondering why it triggers.
- Using a market order to enter a level that has not been reached yet.
- Widening a stop because price approached it.
- Leaving good-till-cancelled orders resting and forgetting them.
Knowledge check
OptionalRelated
- Position sizing and risk per tradeMarket Foundations
- Bid, ask, spread and liquidityMarket Foundations