Understanding Order Types

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What You’ll Learn

• What market orders are and when to use them
• What limit orders are and why they protect you
• Stop-loss orders for risk management
• Stop-limit orders for advanced control
• Time-in-force options (Day, GTC, IOC)
• Common order mistakes beginners make
• How to place each order type on major brokerages

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Why This Matters

• 📊 You’re ready to make your first trade
• 🤔 You see “market” vs “limit” and don’t understand
• 💸 You don’t want to overpay for stocks
• 😰 You’re afraid of making an expensive mistake
• 🎯 You want to understand before clicking “Buy”

• Wrong order type can cost you hundreds of dollars
• Beginners who don’t understand orders often pay 2-5% more than they should
• 5 minutes learning this = thousands saved over lifetime

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The Stock Market Basics (Quick Primer)

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How Stocks Trade

• Sellers list prices they’ll accept
• Buyers offer prices they’ll pay
• When buyer and seller agree on price, trade happens

• The highest price someone is willing to pay RIGHT NOW
• Example: $99.50

• The lowest price someone is willing to sell RIGHT NOW
• Example: $100.00

• Difference between bid and ask
• In this example: $0.50 spread
• Narrow spread (1-2 cents) = very liquid stock
• Wide spread ($1+) = less liquid stock

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Example: Apple Stock (AAPL)

• Bid: $175.50 (highest buy offer)
• Ask: $175.52 (lowest sell offer)
• Spread: $0.02 (2 cents - very liquid)
• Last trade: $175.51

• If you buy with market order: You pay $175.52 (the ask)
• If you sell with market order: You get $175.50 (the bid)
• If you use limit order: You can try for price in between

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Order Type #1: Market Order

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What It Is

• “I want this stock RIGHT NOW”
• “I don’t care about the exact price”
• “Execute as fast as possible”

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How It Works

1. Your broker receives the order
2. Broker looks at the ask price (if buying) or bid price (if selling)
3. Executes immediately at that price
4. You own the stock within seconds (during market hours)

• You place market order to buy 10 shares
• Broker buys at current ask price: $175.52
• Total cost: $1,755.20
• Trade happens instantly

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When to Use Market Orders

1. Highly liquid stocks (large companies)
   • Apple, Microsoft, Amazon, Google, Tesla
   • Bid-ask spread is 1-2 cents
   • Price won’t change much between click and execution
2. When speed matters more than price
   • Breaking news and you want in NOW
   • Dividend deadline and you need to own stock today
   • You’re dollar-cost averaging and don’t care about pennies
3. When you’re buying ETFs during market hours
   • VOO, VTI, SPY are extremely liquid
   • Spreads are tiny
   • Market orders are fine
4. When the spread is tiny (1-5 cents)
   • You’ll pay a few pennies more
   • Not a big deal on large purchase
   • Example: Paying $175.52 instead of$175.50 on a $175 stock = 0.01% difference

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When NOT to Use Market Orders

1. Small, illiquid stocks
   • Low trading volume
   • Wide bid-ask spreads ($0.50 -$5.00)
   • Price can jump between seeing it and buying it
2. Pre-market or after-hours trading
   • Very low liquidity
   • Spreads can be 10x wider than normal
   • You might pay $101 for a stock that's$100 during regular hours
3. Volatile stocks during news
   • Price jumping wildly
   • Might buy at $100, executes at$105
   • Use limit order to cap your price
4. Large orders (thousands of shares)
   • Can move the market
   • Might buy first 100 shares at $100, next 500 at$101, etc.
   • Use limit order for price protection

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Market Order Risks

• You see stock at $100.00
• You click “Buy with Market Order”
• By the time it executes (0.5 seconds), price is $100.50
• You paid $0.50 more per share (0.5% more)

• Buying 100 shares
• Expected: $10,000
• Actually paid: $10,050
• Overpaid $50 due to slippage

• Stock closed at $100
• Pre-market it opens at $105 (gapped up 5%)
• You place market order thinking it’s $100
• Executes at $105
• You paid 5% more than expected!

• After-hours, you see stock at $100
• You place market order for 50 shares
• Expected cost: $5,000
• Morning opens at $108 (news came out)
• Your order executes at $108
• Actually paid: $5,400 - Overpaid$400!

• Small stock with low volume
• Bid: $10.00 / Ask:$10.50 (50 cent spread!)
• You place market order to buy
• Executes at $10.50
• Immediately worth only $10.00 (the bid)
• Instant 5% loss!

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How to Place a Market Order

1. Search for stock ticker (e.g., “AAPL”)
2. Click “Buy” or “Trade”
3. Select “Market Order”
4. Enter quantity (number of shares or dollar amount)
5. Review:
   • Estimated price (current ask)
   • Estimated total cost
   • Order type: Market
6. Click “Submit” or “Buy”
7. Order executes within seconds
8. You receive confirmation

• Estimated price is what you see when reviewing
• Actual price is what you pay when it executes (usually same, but can differ)
• Difference is usually 1-10 cents on liquid stocks

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Order Type #2: Limit Order

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What It Is

• “I want this stock, but only if I can get it at $X or less”
• “Don’t pay more than my limit price”
• “I’m willing to wait for my price”

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How It Works

1. You specify maximum price you’ll pay (if buying) or minimum you’ll accept (if selling)
2. Order sits and waits until:
   • Stock reaches your price → executes
   • Market moves away → order stays open until expiration or you cancel
3. You might not get filled immediately (or at all)

• You place limit order to buy at $175.00
• Stock needs to drop to $175.00 for your order to fill
• If it drops to $174.90, your order fills at$175.00 (you saved $0.50 per share!)
• If it never drops to $175.00, your order never fills

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When to Use Limit Orders

1. Every trade (as a beginner)
   • Protects you from overpaying
   • You control the maximum price
   • Prevents slippage and gaps
2. Illiquid stocks
   • Wide bid-ask spreads
   • Low trading volume
   • Small-cap companies
   • Always use limit orders here
3. Large orders
   • Buying/selling thousands of shares
   • Don’t want to move the market
   • Limit order caps your cost
4. Volatile markets
   • Stock price jumping around
   • News events causing swings
   • Protect yourself from spike
5. When you’re patient
   • Willing to wait for better price
   • Not urgent to own stock today
   • Can set and forget
6. Pre-market / After-hours
   • Very wide spreads
   • Low liquidity
   • Always use limit orders outside regular hours

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When NOT to Use Limit Orders

1. When you absolutely need to own it today
   • Dividend ex-date is tomorrow (must own stock before)
   • Want to participate in earnings immediately
   • In this case, market order ensures you get it
2. In a fast-rising market when you’re buying
   • Stock is trending up strongly
   • Your limit order keeps missing as price rises
   • You keep chasing the price higher
   • Might be better to use market order and accept current price
3. When the spread is 1-2 cents
   • Limit order saves you pennies
   • Might not fill and you miss the trade
   • Sometimes market order’s simplicity is worth 2 cents

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Limit Order Risks

• Stock is at $100
• You place limit order to buy at $99
• Stock never drops to $99
• Stock goes up to $105
• Your order never filled - you missed the gain!

• You wanted to buy Apple at $175
• It’s currently $175.50
• You set limit order at $175.00
• Stock goes straight to $180 over next week
• You saved $0.50 per share but missed$5 per share gain
• Being “too smart” cost you $4.50 per share

• You want to buy 1,000 shares at $100
• Only 300 shares available at $100
• You get 300 shares, order remains open for other 700
• Stock rises to $105
• You only got 30% of position you wanted

• Stock closes at $100
• You have limit order to buy at $99
• Overnight, terrible news
• Stock opens at $95 (gapped down)
• Your order fills at $99... but stock is now worth$95
• You thought you were getting a deal, but you overpaid!

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How to Place a Limit Order

1. Search for stock ticker (e.g., “AAPL”)
2. Click “Buy” or “Trade”
3. Select “Limit Order”
4. Enter quantity (shares or dollar amount)
5. Enter limit price (maximum you’ll pay)
   • Buying: Set at or below current ask price
   • Selling: Set at or above current bid price
6. Choose time-in-force (Day, GTC, etc.) - see section below
7. Review:
   • Limit price
   • Estimated cost if filled
   • Order valid until when?
8. Submit order
9. Order stays open until filled, expired, or cancelled

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Setting Your Limit Price

• Current bid: $175.50 / ask:$175.52
• Set limit at $175.50 (the current bid)
• Will likely fill quickly
• You might save a few cents vs market order

• Set limit at $175.51 (middle of spread)
• Good chance of filling
• Save a penny vs market order

• Set limit at $175.00 (50 cents below)
• Wait for stock to dip
• Might not fill today
• Better price if it does fill

• Set limit at current ask price or 1-2 cents below
• Likely fills quickly
• Protects you from sudden spike
• Best balance of protection and execution

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Order Type #3: Stop-Loss Order

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What It Is

• “I own this stock”
• “If it drops to $X, sell immediately to limit my loss”
• “Protect me from bigger losses”

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How It Works

1. You own a stock (already purchased)
2. You set “stop price” below current market price
3. If stock drops to your stop price:
   • Stop-loss triggers
   • Becomes a market order
   • Sells immediately at current market price

• Current price: $180 (you're up$5)
• You set stop-loss at $170
• If Apple drops to $170, your stop triggers
• Shares sell immediately at market price (~$170)
• You protected your gains (sold at $170 instead of riding it down to$160)

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When to Use Stop-Loss Orders

1. Protecting gains on winning positions
   • You bought at $100, now at$150
   • Set stop-loss at $130
   • Locks in at least $30/share profit even if it crashes
2. Limiting losses on losing positions
   • You bought at $100, now at$95
   • Set stop-loss at $90
   • Caps your loss at $10/share (10%)
   • Prevents “ride it to zero” mistake
3. Managing risk on volatile stocks
   • Swing trading or day trading
   • Want automatic exit if trade goes wrong
   • Removes emotion from decision
4. When you can’t watch the market
   • At work, on vacation, sleeping
   • Stop-loss protects you 24/7
   • Sells automatically if stock plummets

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When NOT to Use Stop-Loss Orders

1. Long-term buy-and-hold investing
   • Volatility is normal
   • Stop-loss gets triggered on routine 10% dip
   • You get sold out of position you wanted to hold 30 years
   • Then stock recovers and you missed the rebound
2. During earnings or major news
   • Stock can have violent swings
   • Might gap down 15%, trigger your stop
   • Then immediately recover to $180
   • You got stopped out at the bottom
3. On stocks you want to hold through dips
   • Long-term conviction in company
   • Don’t mind volatility
   • Want to buy more on dips, not sell
   • Stop-loss defeats your strategy

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Stop-Loss Risks

• Stock normally fluctuates 5-10% weekly
• You set stop-loss 8% below purchase
• Normal volatility triggers your stop
• Stock immediately recovers and goes higher
• You’re out of position you wanted to keep

• Bought Tesla at $250
• Set stop-loss at $230 (8% below)
• Stock drops to $228 on market-wide dip
• Your stop triggers, sells at $228
• Next day, market recovers, Tesla at $255
• You lost $22/share AND missed the recovery

• Stop-loss at $95 (stock currently$100)
• Bad news overnight
• Stock opens at $85 (gapped down 15%)
• Your stop triggers but executes at $85, not$95
• You lost more than you thought stop-loss would protect

• Many traders set stop-losses at obvious levels ($95,$100, etc.)
• Algorithms and institutions know this
• They push price down to trigger stops
• Mass selling pushes price lower
• They buy at the bottom
• Price recovers
• You got “stopped out” in a manipulated move

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How to Place a Stop-Loss Order

1. Navigate to stock you own in your portfolio
2. Select “Trade” > “Sell”
3. Choose “Stop-Loss Order” or “Stop Order”
4. Enter stop price (price that triggers the sell)
   • Usually 5-10% below current price
5. Quantity: All shares or partial
6. Time-in-force: GTC (good til cancelled) is common for stops
7. Review and submit
8. Order stays active until triggered or you cancel it

• Protects against moderate drops
• Gets triggered more often
• Might sell on normal volatility

• Allows for normal volatility
• Protects against major drops
• Common choice for swing traders

• Only triggers on major crash
• Won’t sell on routine corrections
• Good for long-term holders who want catastrophe protection

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Order Type #4: Stop-Limit Order

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What It Is

• “If price drops to $X (stop price), trigger my order”
• “But only sell if you can get at least $Y (limit price)”
• “Don’t sell me out at terrible price in a crash”

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How It Works

1. Stop price: Triggers the order
2. Limit price: Minimum you’ll accept

• Stop price: $170 (trigger)
• Limit price: $168 (minimum sale price)

• Order triggers
• Tries to sell at $168 or better
• If price quickly drops to $165, order doesn't fill (below your$168 limit)

• Order triggered at $170
• Fills at $172 (above your$168 limit)
• Great outcome!

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When to Use Stop-Limit Orders

1. Volatile stocks where you want control
   • Don’t want to be sold at “any price”
   • Willing to risk not filling if it crashes hard
   • Prefer to hold through crash than sell at terrible price
2. Illiquid stocks
   • Wide spreads
   • Stop-loss could fill at awful price
   • Stop-limit protects you from bad execution
3. When you want more control
   • Experienced trader
   • Understand the risks
   • Accept that order might not fill

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When NOT to Use Stop-Limit Orders

1. Beginners
   • More complex
   • Risk of not filling is confusing
   • Regular stop-loss is simpler
2. When you want guaranteed exit
   • Emergency situation
   • Must sell at any price
   • Stop-limit might not fill
3. Fast-moving markets
   • Price gaps frequently
   • Your limit might be too strict
   • You’ll be left holding position you wanted out of

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Stop-Limit Risks

• Stop price: $170
• Limit price: $168
• Stock crashes from $180 to$160 in minutes
• Your order triggered at $170
• But price blew past $168 instantly
• Order never filled
• You’re stuck holding at $160

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Time-in-Force Options

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What Is Time-in-Force?

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Day Order (DAY)

• Order valid only for current trading day
• If not filled by 4pm ET, automatically cancels
• Default for most brokers

• Trying to catch a dip today
• Don’t want order sitting open overnight
• Reevaluating strategy tomorrow anyway

• Monday 10am: Place limit order to buy Apple at $175
• Order doesn’t fill by 4pm
• Order automatically cancels
• Tuesday morning: Decide if you want to place new order

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Good-Til-Cancelled (GTC)

• Order stays active for 30-90 days (depends on broker)
• Works across days, weeks, even months
• Must manually cancel or it expires after 30-90 days

• Patient investor willing to wait for your price
• Stop-loss protection (want it active every day)
• Don’t want to re-enter order daily

• Place limit order to buy Disney at $90 (currently$95)
• Order stays active for 60 days
• If Disney hits $90 anytime in next 60 days, order fills
• You don’t have to remember to re-enter daily

• Stop-loss orders (want continuous protection)
• Patient limit orders (waiting for your price)

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Immediate-or-Cancel (IOC)

• Order executes immediately for whatever quantity available
• Any unfilled portion cancels
• Used for large orders

• Advanced traders
• Large institutional orders
• Want partial fill immediately

• Want to buy 10,000 shares
• Only 3,000 available at your price
• IOC fills 3,000, cancels the other 7,000
• You don’t wait around for rest

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Fill-or-Kill (FOK)

• Order must fill completely and immediately
• Or cancels entirely
• All or nothing

• Advanced traders
• Need complete position or none at all
• Rare for beginners

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Market-on-Open (MOO) / Market-on-Close (MOC)

• Execute at market price at opening bell (9:30am) or closing bell (4pm)
• Guaranteed to fill
• Price not guaranteed

• Want to participate in open/close auction
• More liquidity at open/close
• Don’t mind accepting the resulting price

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Common Order Mistakes Beginners Make

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Mistake #1: Using Market Orders on Illiquid Stocks

• Small stock with $0.50 spread
• You place market order for 1,000 shares
• Immediately lose 5% due to spread

• Always use limit orders on stocks with spreads over $0.05
• Check bid-ask spread before ordering

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Mistake #2: Setting Limit Too Far Below Ask

• Stock at $100, you want to buy
• You set limit at $95 “to get a deal”
• Stock goes to $110 over next month
• Your order never filled
• You saved $5 but lost$10 opportunity gain

• Set limit at or near current price (within 1-2%)
• Don’t try to be “too smart”
• Missing the trade is worse than paying $0.50 more

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Mistake #3: Stop-Loss Too Tight on Volatile Stock

• Buy Tesla at $250
• Set stop-loss at $240 (4% below)
• Tesla routinely swings 5-10% daily
• Stop triggers on normal volatility
• Stock immediately recovers to $260

• Understand stock’s normal volatility
• Set stop-loss below typical range
• 10-15% for volatile stocks
• 5-7% for stable stocks

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Mistake #4: Forgetting GTC Orders Are Open

• 3 weeks ago: Set GTC limit order to buy Netflix at $300
• You forget about it
• Today: Netflix drops to $300 due to bad earnings
• Your order fills
• You check account: “Why do I own Netflix??”

• Track your open orders
• Review and cancel outdated GTC orders weekly
• Most brokers show “Open Orders” section

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Mistake #5: Market Order During Pre-Market

• 8am (pre-market): See stock at $100
• Place market order
• Order executes when market opens at 9:30am at $105
• You overpaid 5% because pre-market prices aren’t “real”

• Always use limit orders pre-market and after-hours
• Or wait for market open (9:30am ET)

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How to Place Orders on Major Brokerages

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Fidelity - Placing Orders

1. Search for stock
2. Click “Trade” > “Buy”
3. Select “Market” under order type
4. Enter shares or dollar amount
5. Review and click “Place Order”

1. Search for stock
2. Click “Trade” > “Buy”
3. Select “Limit” under order type
4. Enter quantity
5. Enter limit price
6. Select time-in-force (Day or GTC)
7. Review and click “Place Order”

1. Go to “Positions” (stocks you own)
2. Click on stock > “Trade” > “Sell”
3. Select “Stop Loss” order type
4. Enter stop price
5. Select GTC (good til cancelled)
6. Review and place order

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Charles Schwab - Placing Orders

1. Search ticker
2. Click “Trade”
3. Select “Buy”
4. Order type: “Market”
5. Enter quantity
6. Review and submit

1. Search ticker
2. Click “Trade” > “Buy”
3. Order type: “Limit”
4. Enter quantity and limit price
5. Time-in-force: Day or GTC
6. Review and submit

1. Navigate to “Positions”
2. Select stock > “Trade”
3. Action: “Sell”
4. Order type: “Stop”
5. Enter stop price
6. Time-in-force: GTC
7. Submit

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Robinhood - Placing Orders

1. Search for stock
2. Tap “Trade” > “Buy”
3. Enter dollar amount or shares
4. Order type: “Market Order” (default)
5. Review
6. Swipe up to submit

1. Search for stock
2. Tap “Trade” > “Buy”
3. Enter shares or dollars
4. Tap “Market Order” to change
5. Select “Limit Order”
6. Enter limit price
7. Time-in-force: Day or GTC
8. Review and swipe to submit

1. Go to stock in your portfolio
2. Tap “Trade” > “Sell”
3. Tap “Market Order”
4. Select “Stop Loss Order”
5. Enter stop price
6. Time-in-force: GTC
7. Review and submit

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E*TRADE - Placing Orders

1. Search ticker
2. “Trade” > “Buy”
3. Order type: “Market”
4. Enter quantity
5. Preview and Place Order

1. Search ticker
2. “Trade” > “Buy”
3. Order type: “Limit”
4. Quantity + limit price
5. Duration: Day or GTC
6. Preview and place

1. Portfolio > Select stock
2. “Trade” > “Sell”
3. Order type: “Stop on Quote”
4. Stop price
5. Duration: GTC
6. Preview and place

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Webull - Placing Orders

1. Search stock
2. Tap “Buy”
3. Order type: “Market”
4. Enter shares or dollar amount
5. Review
6. Confirm

1. Search stock
2. Tap “Buy”
3. Order type: Tap to change to “Limit”
4. Enter quantity and limit price
5. Time-in-force: Day or GTC
6. Review and confirm

1. Go to stock in portfolio
2. Tap “Sell”
3. Order type: “Stop”
4. Enter stop price
5. Time-in-force: GTC
6. Confirm

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Your First Trade: Step-by-Step

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Recommended Approach for Beginners

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Example First Trade: Buying VOO (S&P 500 ETF)

• Search “VOO” in your brokerage app
• See bid/ask: $425.50 /$425.52
• Spread: $0.02 (very tight - good!)

• You want to invest $500
• At $425.52: You can buy 1.17 shares (fractional shares)
• You’ll use limit order for protection

• Order type: Limit
• Quantity: $500 worth (or 1.17 shares)
• Limit price: $425.55 (current ask +$0.03 buffer)
• Time-in-force: Day
• Why $425.55? Gives small buffer so order fills quickly, but protects from sudden spike

• Check all details
• Estimated cost: ~$500
• Limit price: $425.55
• Looks good? Submit!

• Likely fills within seconds at $425.52
• You saved $0.03 per share vs just accepting any price
• Order confirmation appears

• You’re now an investor!
• You own a piece of 500 largest U.S. companies
• Let compound interest work for you

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Success Checklist

• ✅ I understand market orders (execute immediately at current price)
• ✅ I understand limit orders (only execute at my price or better)
• ✅ I know when to use each order type
• ✅ I understand bid-ask spread and why it matters
• ✅ I checked the current bid and ask before ordering
• ✅ I set my limit price at or near the current ask (if buying)

• ✅ I’m using a limit order (recommended for beginners)
• ✅ I set a reasonable limit price (at or slightly above ask)
• ✅ I chose appropriate time-in-force (Day or GTC)
• ✅ I reviewed all details before submitting
• ✅ I understand this is a long-term investment

• ✅ I received confirmation of my purchase
• ✅ I can see the position in my portfolio
• ✅ I’m NOT checking the price every 5 minutes (long-term mindset!)
• ✅ I’m ready to hold for years and let it grow

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What’s Next?

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Immediate Next Steps

• Market Hours: When Can You Trade? →
• Paper Trading: Practice Risk-Free →

• Your First $100 in ETFs →
• Your First $100 in Stocks →

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Ask Sage for Help

I'm about to make my first trade buying [Stock/ETF]. The current
price is $[X]. Should I use market or limit order? What limit
price should I set?

• Recommend the right order type for your situation
• Help you set appropriate limit price
• Explain the reasoning
• Walk you through the order step-by-step
• Calm your nerves!

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The Bottom Line

• ✅ Fast - executes immediately
• ❌ No price control - might overpay

• ✅ Price protection - you control maximum cost
• ❌ Might not fill - could miss the trade

• ✅ Automatic protection - limits losses
• ❌ Can be triggered by normal volatility

• Start with limit orders on everything
• Set limit at or near current ask price
• Use GTC if you’re patient, Day if you’re picky
• Don’t overthink it - the difference is usually pennies