| Order type | What it does | When it is appropriate |
|---|---|---|
| Market order | Buys or sells immediately at the best available price the book offers | Liquid mega-caps and ETFs during normal hours, when speed matters more than the last few cents |
| Limit order | Buys or sells only at the price you specify or better; may not fill if the book never reaches you | Thinly traded names, wide spreads, or any time you would rather miss a fill than overpay |
| Stop (stop-loss) order | Sits dormant until the trigger price prints, then converts to a MARKET order | An emergency exit you accept might fill far from the trigger in fast markets |
| Stop-limit order | Sits dormant until the trigger prints, then converts to a LIMIT order at the limit price | Same as stop, but you cap how bad the fill can be -- at the cost of possibly not filling at all |
Stop-loss and stop-limit are not the same. A stop-loss becomes a market order when triggered, so in a fast-moving gap it can fill arbitrarily far from your stop level -- a stop at $48 on a stock that gaps to $42 overnight will sell at $42, not $48. A stop-LIMIT becomes a limit order at a price you set, so it protects you from a terrible fill BUT may not fill at all if price slices straight through your limit on the way down. There is no order type that both guarantees execution and guarantees price.
Slippage is the gap between the price you expected and the price you actually got. Three predictable causes: (1) the spread itself -- crossing it costs half the spread on a round-trip; (2) walking the book on a size that exceeds the top-of-book depth (see stk-8); (3) market-data latency, where the quote you saw was already a few hundred milliseconds stale by the time your order reached the exchange. Slippage is not a brokerage trick. It is the mechanical cost of demanding immediate execution from a book that may have already moved.
Marketable limit orders are the middle path most professionals use: a limit order priced AT or slightly ACROSS the current best quote so it fills immediately if the book is honest, but stops if the book is wider than the screen shows. A buy limit at $50.10 against a $50.05 / $50.10 quote will sweep available liquidity up to $50.10 and stop -- no surprise $51 fill if the ask suddenly thins out. This is the right default for any size that matters, in any name that is not a top-tier ETF.
Sit with the ideas.
Halstead Trading runs an automated risk system that places stop-loss orders 10% below every entry. On a Sunday night, geopolitical headlines push futures down sharply. At Monday's regular open, one position has dropped 18% -- well below the 10% stop level set Friday. The stop triggered and filled, but the fill price was 17.4% below entry, not 10%. The portfolio manager wants to know whether the broker mishandled the order. What is the disciplined diagnosis?