A market order gives you whatever price is available in the marketplace. For example, if you buy using a market order you will get whatever price is available from those willing to sell to you. If you sell using a market order, you get whatever price is available from people willing to buy from you. Market orders are advantageous when you need to get into or out of a trade quickly, such as when the price is moving quickly. The problem with market orders is that you don’t know the exact price you will end up buying or selling at. If you buy an asset with a tight bid/ask spread, usually you’ll end up paying the ask price, and when you sell you’ll end up paying the bid price. In markets with low volume or a large bid/ask spread, you could end up paying or selling at a much different price than expected. The attached chart shows an example of this. The buy limit order is placed below the current price of the EUR/USD forex pair. The current price is 1.08936. The buy limit is at 1.0775 (dotted lower line). Therefore, the price must drop to 1.0775 (or below) to fill the buy order. Buy limits are also used as targets, to get you out of a profitable short trade. *Fill means your order is completed, for example, if you put out an order to buy 100 shares at a limit price of $10, and someone sells you 100 shares at $10, then your order is filled. The attached chart shows an example of this. The sell limit order is placed above the current price of the EUR/USD. The current price is 1.08971. The sell limit is at 1.09600 (dotted upper line). Therefore, the price must rally to 1.09600 (or above) to fill the sell order. Sell limits are also often used as targets, to get you out of a profitable long trade. The attached chart shows an example of this. The buy stop order is placed above the current price of the EUR/USD. The current price is 1.08991. The buy stop is at 1.0918 (dotted upper line). Therefore, the price must rally to 1.0918 (or above) to fill the buy order. This order can be used to get out of a short trade. Buy stops act like market orders once the buy stop price is reached. Therefore, they are useful for using as a stop loss on short positions, when you must get out because the price is moving against you. They are also useful for buying breakouts above resistance, but you can’t be sure of the exact price you will end up buying at. The attached chart shows an example of this. The sell stop order is placed below the current price in the EUR/USD. The current price is 1.08978. The sell stop is at 1.0868 (dotted lower line). Therefore, the price must drop to 1.0868 (or below) to fill the sell order. This order can be used to get out of a long trade. Sell stops act like market orders once the sell stop price is reached. Therefore, they are useful for using as a stop loss on long positions, when you must get out because the price is moving against you. They are also useful for selling/shorting on breakouts below support, but you can’t be sure of the exact price you will end up selling at. If you want to buy as the price rises, the buy stop limit order prevents you from paying a higher price than anticipated; the buy stop doesn’t offer this same protection. A buy stop limit order is useful for buying when the price breaks above a particular level (such a resistance) but you only want to buy at a specific price or lower when that event occurs. If you want to sell as the price falls, the sell stop limit order prevents you from selling at a lower price than anticipated; the sell stop doesn’t offer this same protection. A sell stop limit order is useful for selling when the price breaks below a particular level (such a support), but you only want to sell at a specific price or higher when that event occurs.
