Overview — Why Order Types Matter

Order types define how and when your trade is executed. Choosing the correct order type affects entry price, execution certainty, and risk. Market orders prioritize execution over price. Limit orders prioritize price over immediate execution. Stop orders are commonly used to enter breakout moves or to limit losses. Understanding these distinctions is essential for reliable trade management and controlling slippage.

Market Orders — Execute Immediately

A market order instructs your broker to buy or sell at the best available current price. Market orders aim for immediate execution but do not guarantee a specific price — if liquidity is low or the market moves quickly, the execution price can differ from the last displayed quote (slippage).

When to use market orders

• When immediate execution matters (e.g., exiting a fast-moving position).
• When spreads are tight and liquidity is high (major pairs during session overlap).

Risks & notes

• Slippage can be positive or negative.
• Market orders executed during volatile news releases can suffer large adverse fills.

Limit Orders — Price First, Execution Second

Limit orders execute only at the limit price or better. A Buy Limit is placed below the current market price (you want to buy cheaper). A Sell Limit is placed above the current price (you want to sell higher).

When to use limit orders

• Buying on pullbacks (Buy Limit) or selling into resistance (Sell Limit).
• When you require a specific entry price and can wait for the market to reach it.

Key behavior

• Limit orders may not fill if price never returns to the limit level.
• During rapid moves, market orders can jump past your limit, leaving the order unfilled.

Stop Orders — Triggered at a Price

Stop orders (also called stop-market) become market orders when the stop (trigger) price is reached. They are used to enter breakouts or to stop losses.

Buy Stop vs Sell Stop

• Buy Stop: placed above the current price — used to buy when price breaks higher.
• Sell Stop: placed below the current price — used to sell when price breaks lower.

Common uses

• Entering breakout trades when price surpasses a key level.
• Using as a stop loss marker when you want the stop to trigger a market exit.

Stop-Limit Orders — Controlled Entry Price

A stop-limit order combines a stop (trigger) and a limit. When the stop price is reached, the order becomes a limit order at a specified limit price (not a market order). This allows more control over execution price but comes with the risk of non-execution if the market moves past the limit.

How it works

Set a stop (trigger) price and a limit price. When the trigger activates, a limit order is placed at the limit price. If the market moves through the limit without filling, the order remains unfilled.

IOC / FOK / GTC / Day — Order Lifespan & Fill Policies

Most brokers support various order time-in-force (TIF) and fill policies:

Use IOC/FOK for large orders where partial fills are undesirable. GTC is convenient for long-term limit entries.

Slippage, Re-quotes & Liquidity

Slippage is the difference between the expected fill price and the actual execution price. Slippage can be positive (better price) or negative (worse price). It is most likely during volatile news, low liquidity, or market gaps.

Re-quote happens with some brokers on instant-execution models — if the price moves before the broker can fill, they may offer a new price to confirm.

Practical Examples & Calculations

Below are realistic examples to illustrate how order types behave.

Example 1 — Buy Limit (buy the dip)
Current EUR/USD: 1.1018
Strategy: Buy on pullback to 1.0990
Order: Buy Limit 1.0990, lot size 0.1 (10,000)
If price drops to 1.0990, order fills near 1.0990. If it never drops, no entry.

Example 2 — Sell Stop (breakout short)
Current EUR/USD: 1.1018
Strategy: Sell if price breaks below 1.0980
Order: Sell Stop 1.0980, SL = 1.1020 (40 pip risk), TP = 1.0940
When 1.0980 triggers, order converts to market and will fill at the best available price (slippage possible).

Example 3 — Stop-Limit to avoid slippage
Current: GBP/USD 1.3000
Place Buy Stop 1.3050 with Limit 1.3060 (so when trigger hits a limit at 1.3060)
This may avoid large slippage but could miss the trade if price jumps past 1.3060.

Broker Behavior & Order Routing

Different brokers have different execution models: STP (straight-through processing), ECN (electronic communication network), or market maker. ECN/STP brokers often provide tighter spreads and direct market access; market makers may internalize orders and can offer fixed spreads. Know your broker’s execution policy and order handling — this influences fills, slippage, and requotes.

Choosing an Order Type — Risk Management Tips

• For precise price entries, use limit orders but accept potential non-execution.
• For guaranteed execution when exiting a position, market orders are appropriate, but anticipate slippage.
• To combine controlled price with a trigger, use stop-limit (beware of missed fills).
• Always set a stop loss for live trades — never rely on manual execution alone during volatile markets.

Pre-Trade Order Checklist

• Have you selected the correct instrument and direction (buy/sell)?
• Have you chosen an order type matching your strategy objectives (immediacy vs price)?
• Are stop loss and take profit levels set and reasonable for volatility?
• Have you checked spread, liquidity, and upcoming news?

FAQ

Q: Which order type is best for scalping?

A: Scalpers typically rely on market orders for quick entries on very liquid pairs with tight spreads, or aggressive limit orders when waiting for precise micro-reentries.

Q: Will a stop-limit protect me from slippage?

A: It reduces the chance of executing at a much worse price but may result in no execution at all if the market gaps through your limit.

Q: Can I set expiration on orders?

A: Yes — use Day or GTC based on your broker. Check whether your broker supports additional TIF options like IOC or FOK.

Next Steps

Practice placing different order types in a demo account. Try scenarios with limit entries, stop-based breakout entries, and stop-limit protections to observe slippage and fills. Next lesson: Stop Loss, Take Profit & Position Sizing — learn how to size trades and place protective orders to manage risk.