Skills · Investment mechanics
Market, Limit and Stop Orders
An order controls how a decision reaches the market. It cannot guarantee both an acceptable price and an immediate exit.
Decide which uncertainty you accept
“Sell if it falls” sounds complete until the market opens below your trigger. Order instructions need to cover execution, price and what happens when those goals conflict.
A market order prioritises execution against available orders. A limit order sets a price boundary. A stop order waits for a trigger before becoming another instruction. Broker terminology and market support vary; inspect the actual order conditions.
Market: the price is not locked
A market buy can consume several offers if there are insufficient shares at the best price. The final average price may differ from the quote you saw. Thin liquidity, fast moves and a reopening after news make that difference especially important.
Execution is not unconditional: a halt, closed market or broker restriction can prevent it. On ASX, a broker’s “market” instruction may be implemented through a market-to-limit or another supported order, with different behaviour for unfilled quantities.
Limit: the fill is not locked
A buy limit states the highest acceptable purchase price; a sell limit states the lowest acceptable sale price. A hypothetical $10 buy limit can execute at $10 or less. It may fill partially, or not at all. A trade occurring at your limit does not prove your order should have filled: other orders may be ahead of it.
A limit controls price per share, not the total commitment including fees. Quantity still needs its own check.
Stop: the trigger is not the exit price
Suppose, hypothetically, a holding last traded at $10 and has a $9 stop. Bad news arrives overnight and the first available bid is $8. A stop-market instruction may execute around the available price, rather than $9. A stop-limit instruction triggered at $9 with an $8.90 limit may remain unfilled.
The first accepts price uncertainty; the second accepts the possibility of continued ownership. Neither creates a guaranteed loss ceiling. Position sizing must account for gaps and failures to exit.
Read the smaller settings
Check whether the trigger uses a trade, bid or another price; whether it operates outside regular hours; when it expires; how partial fills work; and whether corporate actions cause adjustment or cancellation. A conditional order held by a broker is not necessarily sitting on the exchange.
Low bandwidth does not disappear because an order is automated. You still need to confirm acceptance, monitor exceptional events and avoid placing a duplicate while an earlier instruction is unresolved.
What to do with this
Before the next order, write one sentence: “I accept either price uncertainty or non-execution, and my fallback if this order does not work is ___.” Then check those assumptions against your broker’s order guide.