A Beginner’s Guide to Market, Limit, and Stop Orders

Market order is a basic tool for making a trading operation. Traders use it to set the conditions for buying or selling an asset, automate transactions and manage risks. Without understanding how orders work, it is difficult to expect a systematic result in trading — especially in the crypto market, which is characterized by high dynamics and volatility;

The Coinpaper editorial team has figured out what types of orders exist, how pending trades work and what to consider when choosing a tool for your strategy.

What are orders in trading: basic concepts

An order in trading is a command to buy or sell an asset at a specified price. The trading platform executes the order only when the specified conditions occur — for example, if the set purchase price is lower than the current one, the transaction will occur automatically as soon as the quotes fall to the desired level.

Depending on the strategy, traders use different types of orders: market orders, limit orders, stop orders and their derivatives. Each of them has its own execution mechanics and is applicable in specific market scenarios.

In general, orders allow you to automate trades, set entry and exit parameters, as well as reduce the influence of emotions on the trading process and manage positions more systematically.

The main types of orders: market, limit and stop orders

Different order formats are used in trading – depending on conditions, goals and current market situation. Below are the most common types of orders.

Market order

This is a command to instantly execute a trade at the best available price. This format is suitable in situations where speed rather than price is the priority. It is used at high rates of market movement, when it is important to enter or exit a position immediately.

Example: if an asset is trading at $100, a market buy order is executed instantly at the current or nearest available price.

Limit order 

This is an order for a transaction at a predetermined price, which is executed only when the quotes reach a predetermined level. This approach allows you to control the entry or exit price, but does not guarantee execution.

Example:A trader wants to buy an asset for $95 at the current price of $100. He places a limit order that will only be executed if the price drops to $95.

Stop order

Activated when a target is reached and then turns into a market or limit order. This type is used to automatically close a position to limit losses or lock in profits when the target is reached.

Example: at an asset price of $100, a trader sets a stop order to sell at $90. If the price falls to this mark, the order is activated and will be executed at the value at the time of activation or within a specified limit.

Below is a table that illustrates the differences between the main types of orders. The choice of a particular solution depends on the strategy: some prefer speed, others prefer entry or exit price. Proper application allows you to effectively manage positions in any market conditions.

Pending orders: how they work and when to use them

It is not always profitable to enter a deal at once, sometimes you need to wait for the target value and only then enter or close a position. For such cases, the exchange uses pending orders, which are activated only when a specified condition is met;

There are two main types of pending orders, stop order and limit order, which in turn are divided depending on the type of transaction (buy or sell). As a result, we get 4 orders with different execution mechanics;

• Buy Limit – used when you need to buy an asset at a price lower than the current one.They are often useful within the strategy “on a pullback”, when a trader reduces the price to a certain level with further recovery;
• Sell Limit – used for selling above the market price. It is useful when the goal is to lock in a profit if the asset rises to a certain level;
• Buy Stop is an order to buy above the current price, which is activated when the specified level is reached. It is used when impulse growth is expected – for example, if the price breaks the resistance level;
• Sell Stop – an order to sell below the current price. It is used to limit losses or when trading on the breakdown of the support level;

To clearly understand the difference between a limit order and a stop order, let’s look at the same trade using different tools.

A digital asset costs $100. To buy it cheaper, for example at $95, the trader opens Buy Limit. This is a “down” bid – the transaction will occur only if the price falls to $95. If the goal is buy on the rise, for example, when breaking the level of $105 – is used Buy Stop. This is a “momentum” order – the trade will only occur if the price rises to $105..

The same works for closing positions – to sell above the market at $105 – open Sell Limit, to sell below the market when the price falls to $95 – Sell Stop.

Thus, a limit is a trade at the best price, a stop is a trade at the market movement. Such pending orders are often used in “on breakout” and “on rebound” strategies. For example, if the price is consolidating near resistance for a long time – Buy Stop allows you to enter when the growth starts. And Buy Limit gives the opportunity to buy the asset on the decline, if the subsequent reversal upward is expected.

Types of orders in different markets: stock market, forex, cryptocurrencies

Order mechanics may differ depending on the trading environment. Next, let’s look at the features of three key markets: stock, forex and cryptocurrencies, as well as the unique types of trades used by traders in each of them.

Stock market

Trading on traditional exchanges, such as the NYSE or NASDAQ, occurs on a scheduled basis. An order on an exchange is submitted through a broker and is executed within the session. 

Because of the relatively low volatility in this market, control over the execution price is important, so traders actively use limit orders to avoid slippage, as well as stop orders to limit losses. But in case of sharp movements, for example, at the opening of trading, such orders may trigger with a delay or not at the best price.

Additional order types:

• Fill or Kill (FOK) – full and immediate execution, otherwise the order is canceled;
• Immediate or Cancel (IOC) – partial execution is allowed at a certain price, the remaining part is canceled;
• All or None (AON) – executed only when full volume is available;
• Intermarket Sweep Order (ISO) – allows the transaction to be executed on multiple venues for accelerated execution at the best price;

Forex

The international forex market operates 24/5, and its high liquidity and instant execution make it sensitive to news and speculation. Forex traders prioritize speed of entry, so they use mostly market orders. Pending orders are also often used to enter or exit at specific price levels.

Additional order types:

• Trailing Stop – dynamic stop that follows the price;
• Good ‘Til Canceled (GTC) – active until manually canceled;
• Good ‘Til Time (GTT) – active until a specific time;
• One-Cancels-the-Other (OCO) – a pair of two orders, when one is triggered, the other is canceled.

Cryptocurrencies

The cryptocurrency market operates without weekends – 24/7. This requires full automation and constant control of positions from the trader. Crypto exchanges use all classic types of orders: market orders, limit orders, stop orders, pending orders, but due to volatility, protective instruments play a key role:

• Stop-Loss Market – an order to sell on the market when the stop level is reached;
• Take-Profit Limit – profit taking at the limit price;
• OCO (One-Cancels-the-Other) – simultaneous setting of Stop and Take-Out;
• Iceberg Order – splitting a large order into parts with hiding the total volume;
• Post-Only – added to the stack, but not executed;
• Trailing Stop – automatic protection of profit in case of growth.

In the crypto market, a reasonable combination of orders is a mandatory element of the strategy: limit on entry, stop on exit, trailing – to accompany the price movement. Without them, it is extremely difficult to maintain control in an unstable environment.

How to choose the right order for your strategy

Choosing the right type of order on the stock exchange is one of the key factors in trading. It determines not only the result of the deal, but also the level of control over the position, the amount of risk and the logic of order execution. Different formats are suitable for different strategies:

• market order is convenient for those who are interested in speed of execution. If you need to enter a position immediately – for example, on a rising or falling impulse – it is the best option. However, it does not give you control over the price, so it may work with slippage;
• limit is used if the priority is the entry point. It allows you to specify a specific price and wait for the market to reach the desired level. It is suitable for situations when a trader is ready to wait;
• stop order is used to protect a position. It is the main tool for limiting losses (stop loss) or fixing profits (take profit). It is activated only when a specified level is reached and then executed as a market or limit trade.

The type of strategy also affects the choice, for example, short-term trading (scalping) gives priority to market orders, while in position trading limit and pending orders are more often used.

The more accurately an order is chosen, the more systematic trading becomes: less emotion, more control and higher efficiency.

What is the difference between stop-limit and stop-market?

Frequently asked questions

What is the difference between stop-limit and stop-market?

After activation, a stop-limit becomes a limit order – it is executed only at the specified or more favorable price. A stop market order immediately becomes a market order and is executed at the price at the time of activation.

Can the order be canceled after placing it?

Yes. Any order can be canceled before its execution or in case of partial execution. As a rule, this is done quickly and without additional fees through the exchange interface.

Why is a limit order not executed?

Most likely, the market has not yet reached the price level you specified. A limit order works only if there is a counter offer at the specified price.

What type of order is better to use when volatility is high?

In conditions of sharp price fluctuations it is more reasonable to use a stop market. It is executed faster and allows to limit losses in case of a sharp price movement against the position.

Does order volume affect execution speed?

Yes. Large volumes may not be executed immediately, especially in a market with low liquidity. Often such orders are executed in stages, which can lead to slippage.