Question

Describe the differences among the following three types of orders: market, limit, and stop loss.

Answer 1

A market order is an order to buy or sell which is to be executed at the current market prices immediately. Limit order is again for both but and sell orders. It tells the broker to stop trading if the price is adverse beyond a ceratin price. So if it is a buy order, it specifies the maximum price to buy or lower and if it is a sell order it specifies the minimum price to sell or higher.

A stop loss order is used to limit losses . It instructs the broker to close the trade at the maximum sustainable loss to the investor. So for buy orders the trade is executed when price rises above the stop price and for sell orders it means execution when the price drops below the stop price specified.

The intent of a limit order is to lock the price they desire while the intent of a stop loss order is to limit the losses. Both these trades have higher commissions than market orders.