Types of Orders Explained
Placing orders is not just about clicking a button—it’s an art form that every trader must master. Knowing when and how to use different order types—market, limit, stop, and stop limit—can be the key to successful trades. Each order serves a distinct purpose, especially under varying market conditions.
This Emini trading guide focuses on buy orders, but the same logic applies to short selling with reversed mechanics.
Market Order
A market order is the most straightforward type. When you place a market order, you instruct your broker to execute the trade immediately at the best available price. You cannot choose the price.
However, market orders are susceptible to slippage in fast-moving markets. For example, if you place a market order to buy 10 lots, the fills might be staggered—3 at $10.00, another 3 at $10.50, and 4 at $11.00. Use market orders when you need to enter or exit a trade quickly, especially in volatile scenarios where timing is more critical than price.
Limit Order
A limit order allows you to specify the maximum price you’re willing to pay. For instance, if you place a buy limit order for 2 lots at $10, you will never pay more than $10. You might get both at $10 or even better—such as $10 and $9.50.
The biggest advantage? Price control. A limit order won’t execute unless the price meets your criteria, giving you better trade precision. It’s the most versatile and commonly used order in stable or sideways markets.
Stop Order (Stop Loss Order)
A stop order is typically used as a stop loss, a crucial tool for risk management. It activates only when a specified price level is breached.
Let’s say you’re long at $10 and you place a stop order at $8. If the price drops to $8, the stop order becomes a market order, closing your position immediately to limit losses. Until that level is hit, the order remains inactive.
Even if you’re actively monitoring the market, using a stop loss eliminates emotional hesitation and protects against sudden market reversals. It’s an essential practice for every trader—don’t skip it.
Stop Limit Order
A stop limit order blends elements of stop and limit orders. Like a stop order, it activates when the price hits a predetermined level. However, instead of becoming a market order, it becomes a limit order at that price.
Using our previous example: you’re long at $10, and you place a stop limit order to sell at $8. Once the price hits $8, the order turns into a limit order—meaning it will only fill at $8 or better (i.e., above $8).
This offers more price control than a regular stop order but comes with a risk: in fast markets, your order might not get filled at all if the price slips below $8 and never comes back.
Conclusion
Understanding the mechanics and applications of these four order types is a fundamental step toward becoming a skilled trader. Use:
- Market Orders when speed matters most.
- Limit Orders when price precision is key.
- Stop Orders to limit losses automatically.
- Stop Limit Orders to maintain price control during exits.
Each order type serves a unique purpose. Choosing the right one at the right time can make a significant difference in your trading performance.
