Trading Evolution
Order Flow and Market Microstructure · Lesson 1 of 5

Order Types Explained: Market, Limit, Stop and Stop-Limit Orders

An order tells the exchange what to do with your position. A market order trades immediately at the best available price; a limit order waits at a price you choose or better; a stop order becomes a market order once a trigger price trades; a stop-limit order becomes a limit order instead.

Beginner · 9 min read · Updated

What you will learn

Choose the right order type for each situation and know what happens to it in the order book.

Read first: No prerequisite: start here.

Two families: orders that wait and orders that take

Every trade needs two sides. A limit order rests in the order book and waits: it provides liquidity. A market order executes at once against the resting orders on the other side: it takes liquidity. A market buy fills at the best ask; a market sell fills at the best bid.

OrderPriceFillMain risk
MarketBest availableImmediateSlippage
LimitYour price or betterOnly if price reaches itNo fill
Stop (stop-market)Market once triggeredAfter the triggerSlippage in fast markets
Stop-limitLimit once triggeredAfter the trigger, if the limit allowsNo fill
Where orders sit around the best bid and askA price ladder from 18,403.25 down to 18,401.50 with sizes at the bid and ask. Notes mark a resting limit sell at 18,403.00, the best ask at 18,402.75, the best bid at 18,402.50, a resting limit buy at 18,402.00 and an invisible sell stop at 18,401.50.Bid sizePriceAsk size18,403.252118,403.0014Your limit sell (resting)18,402.759Best ask: a market buy fills here1118,402.50Best bid: a market sell fills here1718,402.252518,402.00Your limit buy (resting)1918,401.7518,401.50Sell stop: hidden until triggered
Limit orders rest in the book; market orders fill at the best bid or ask; stop orders stay invisible until triggered. Hypothetical illustration drawn for this lesson — not real market data.

Stop orders are not in the visible book

A stop order is held until its trigger price trades, then it is released as a market order. While it waits, it does not appear in the depth of market. That is why stops can accumulate unseen beyond obvious highs and lows, a point developed in the lesson on buy-side and sell-side liquidity.

Hypothetical example · Where each order sits

The best bid is 18,402.50 and the best ask 18,402.75. A limit buy at 18,402.00 waits two ticks below the bid. A limit sell at 18,403.00 waits one tick above the ask. A sell stop at 18,401.50 is invisible: if a trade prints at 18,401.50, it becomes a market sell and fills at the best bid available at that moment.

Brackets, OCO and time in force

  • Bracket: an entry with a stop and a target attached; when the entry fills, both exit orders are placed.
  • OCO (one cancels other): two linked orders; when one fills, the other is cancelled. A bracket’s stop and target are usually OCO.
  • Time in force: a day order expires at the end of the session; a good-till-cancelled order stays until filled or cancelled.

Platforms name these features differently; the NinjaTrader help guide lists the order types available in NinjaTrader 8.

Choosing an order type

  • Entering at a planned level, such as a fair value gap: a limit order, accepting that price may not come back.
  • Exiting when the idea is invalidated: a stop-market order, accepting slippage, because not being filled is worse.
  • Entering on a breakout that must not be missed: a stop-market entry, with the cost of slippage included in the plan.

Order types on your platform

Platforms present the same building blocks with their own names and shortcuts. NinjaTrader 8, for example, offers market, limit, stop market, stop limit and market-if-touched orders, and its ATM strategies attach a stop and a target to an entry automatically. Other platforms have equivalent features under other names.

  • Check in simulation how your platform handles a bracket when the entry is only partly filled.
  • Check where stops are held — on the broker’s server or on your computer — because a stop held locally does not protect you if your connection drops.
  • Check what happens to resting orders at the end of the session.

Knowing these details before trading live avoids the most expensive kind of mistake: an order that does not behave as you assumed.

Common mistakes

  • Using market orders in thin hours, where the spread is wide.
  • Protecting a position with a stop-limit that can be skipped.
  • Forgetting a resting order after the position is closed.
  • Believing that resting limit orders shown in the book will stay there: they can be cancelled at any time.

Practice exercise

Open a simulation account. Place a limit buy two ticks below the bid, a sell stop below the last swing low and a limit sell above the ask, then watch the depth of market: which orders appear in the book and which do not? Cancel all of them before closing the platform.

Check your understanding

1. Where does a market buy order fill?

  1. At the best bid
  2. At the best ask
  3. At the last traded price
Show the answer

Answer: At the best ask. A buyer who takes liquidity pays the offer, the best ask.

2. Why are stop orders not visible in the depth of market?

  1. They are held until their trigger price trades
  2. They are always cancelled at the open
  3. They are executed by another exchange
Show the answer

Answer: They are held until their trigger price trades. A stop only becomes a market order after its trigger trades.

3. What is the main risk of a limit order?

  1. Slippage
  2. Not being filled
  3. Paying the spread twice
Show the answer

Answer: Not being filled. Price may never reach the limit.

Practise with the free tools

  • TEVO DOMTEVO DOM, a free Level 2 depth of market for NinjaTrader 8: price ladder, depth, size changes, Time & Sales and confirmed order entry in its own window.
  • Futures position size calculatorTurns a stop in ticks or points into a number of contracts for the risk you choose, using official tick values.

Frequently asked questions

Is a stop order guaranteed to fill at the stop price?

No. Once triggered it becomes a market order and fills at the best available price, which can be worse in a fast market.

What is the difference between a stop-limit and a limit order?

A limit order is active immediately. A stop-limit order only becomes a limit order after its trigger price trades.

Which order type do scalpers use most?

It varies. Many use limit orders to avoid paying the spread, and stop-market orders to exit, because execution certainty matters more on exits.

Related lessons

Order Flow and Market Microstructure · Lesson 2 of 5 · Beginner · 8 min readBid, Ask and Spread: How Prices Are Quoted and What They CostRead the best bid and ask, calculate the cost of crossing the spread and recognise when it widens.Read →Order Flow and Market Microstructure · Lesson 3 of 5 · Intermediate · 9 min readSlippage in Trading: What It Is and How to Measure ItCalculate the slippage of an order from its fills and include realistic slippage in your results.Read →

References and further reading

  1. CFTC Glossary (limit order, market order, stop order) — U.S. Commodity Futures Trading Commission
  2. Types of Orders — Investor.gov (U.S. Securities and Exchange Commission)
  3. Order Types (NinjaTrader 8 Help Guide) — NinjaTrader

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