Types of stock market orders: how to buy and sell on the stock market
A stock market order is an instruction you give to your broker to buy or sell a share. There are several types of order, each suited to a different situation. It is essential to understand these orders before making your first investment.
🎯 What you’ll learn
- What is a stock market order and what is it used for?
- The three main types of orders and when to use them
- How a market order is executed immediately
- Why setting a price limit protects your portfolio
- The risks associated with each type of order
What is a stock market order?
A stock market order is an instruction you send to your broker (the intermediary who manages your investment account) to buy or sell a share. Without an order, you cannot invest in the stock market.
When you place an order, you specify: the name of the share, the quantity (number of shares), the price if you wish, and the validity period of your order (for example, today only or for 30 days).
The order is executed on the market: either immediately if the conditions are met, or on a pending basis until they are met. It is this system that ensures that all investors have access to the same price at the same time.
The three types of orders you need to know about
Market order is the simplest option. You ask to buy or sell a share at the best price currently available. The order is executed almost instantly, but you have no control over the exact price. For example: you say, ‘I want 10 shares in ABC’ without specifying a price. You receive them immediately at the current price, even if it has changed slightly in the space of a few seconds.
The limit order allows you to set a maximum price (for a buy) or a minimum price (for a sell). You say: ‘I’ll buy 10 shares, but no higher than 50 € ᴜ’. If the price falls to 50 € or below, the order is executed. Otherwise, it remains pending. This order protects you, but it is not always executed.
The trigger-threshold order (or stop) works differently. You set a trigger price. If the share price reaches that price, the order is converted into a market order and executed. Example: you hold a share at100 € and place a stop order at90 €. If the share price falls to90 €, the order is triggered and you are sold at the best available price. This is useful for limiting your losses.
When should you use which order?
Use themarket order when you’re sure you want to buy or sell straight away, without waiting. It’s quick, but the price may vary slightly.
Use thelimit order when you have a price in mind and are willing to wait. For example, you might think a share is too expensive at 100 €, but you would buy it at 85 €. You place a limit order at 85 € and wait.
Use thestop order to protect your investments. If you’re worried that a share might fall too far, a stop-loss order will automatically sell it for you if it reaches a certain price.
Risks you need to be aware of
A market order is executed quickly, but the price may have changed since you placed your order, particularly for highly volatile shares (whose prices change rapidly). You may end up paying more than you expected.
A limit order may never be executed if the price does not fall (or rise) to your limit. You are left holding your breath, with no action taken.
A stop order may be triggered at the wrong time, particularly in the event of a sharp market fall. You end up selling at the worst possible moment without really meaning to.
📖 Definitions
- Stock Exchange Order
- An instruction you give to your broker to buy or sell a share under certain conditions.
- Broker
- A financial intermediary who executes your buy and sell orders on the stock exchange on your behalf.
- Market order
- An order that is executed immediately at the best available price, without setting a price limit.
- Limit order
- An order that is only executed if the price reaches exactly the price you have set (or better).
- Stop order (or trigger level)
- An order that automatically converts to a market order when the price of a share reaches an alert level that you have set.
💡 A practical example
You want to buy 5 shares in XYZ, currently trading at 100 €. With a market order, you buy them immediately at 100 € (or very close to that price). With a limit order at 95 €, you wait for the price to fall to 95 € or lower. If you already own these shares and are concerned about a fall in price, you place a stop order at 90 €: if the price falls to 90 €, your shares are automatically sold to limit your loss.
⚠️ Risks you need to be aware of
- A market order carries a risk of slippage: the price may have changed between the time of your order and its execution, particularly during periods of high volatility.
- A limit order may remain pending indefinitely and may never be executed if the price does not reach the specified level.
- A stop order may be triggered at the wrong time, particularly during a sudden market downturn, forcing you to sell at a low price.
- All orders involve your real money: a mistake regarding quantity or price could prove costly.
✅ Key points to remember
- A stock market order is the only way to buy or sell a share: it is a specific instruction to your broker.
- A market order is fast but does not control the price; a limit order protects your price but may not be executed.
- A stop order helps you limit your losses by automatically selling if the price falls too far.
- Each type of order has its own advantages and risks: choose the one that best suits your circumstances and how urgent your needs are.
- Before placing an order, always check the quantity and price to avoid costly mistakes.
🧠 Test your knowledge
1. What type of order is executed immediately at the best available price, without any price check?
A market order is executed immediately at the current price. You do not set a price limit, which guarantees rapid execution but exposes you to the risk that the price may have changed.
2. What is a stop order used for?
A stop order is triggered automatically when the price reaches a level you have set. It is a protective measure: it limits your losses by selling if the share price falls too far.
Fancy taking it a step further?
Analysise this security in detail on Baziloo — B-Score, risk metrics, price history — and track it in your portfolio.
Sources
- AMF — Investor Zone (Autorité des marchés financiers) — amf-france.org
See also
The information published by Baziloo is provided for educational and informational purposes only. It does not constitute investment advice, a recommendation to buy or sell, or an analysis tailored to your personal circumstances. All investments carry a risk of capital loss.