Stock and ETF order types: Understanding market, limit, and stop orders
In the stock market, buy orders and sell orders are the building blocks of transactions. A buy order is a request to purchase a security, while a sell order is a request to sell a security.
When trading, you’re typically buying or selling at the current market price—and those prices can fluctuate rapidly. To manage volatility risk, traders can use specific order types that give more control over the price you’re willing to pay or sell for. For example, a limit order lets you set a maximum price to buy a security or a minimum price to sell a security. This way, you can help protect yourself from market swings and avoid trading at a price you don’t want. The limit order is one among several order types that can help you refine your trading strategy.
Types of stock and ETF orders
When investing in the stock market, 2 popular choices are stocks and ETFs (exchange-traded funds). Stocks represent part ownership in a single company, like Apple or Amazon. When you buy a stock, you’re essentially buying a tiny piece of that company’s assets and profits. On the other hand, ETFs are like baskets that hold a collection of stocks, bonds, or other securities. When you buy an ETF, you’re spreading your investment across many different assets, which can help you diversify your portfolio and manage risk.
To trade a stock or ETF, you submit an order to buy or sell a specific number of shares near a set price. There are several order types, each with distinct rules and advantages.
Choosing the right order type is crucial for your trading strategy. If you choose the wrong order type, you might end up paying more than you want, selling for less than you want, or even missing out on a trade altogether. Here are the 4 most common order types, along with their benefits and risks:
Limit order
Buy/sell at a specific price (or better).
May not be executed.
Market order
Buy/sell at the current market price.
No price control.
Stop-loss order
Buy or sell once a specific price is reached. (Once a stop-loss order is triggered it becomes a a market order to sell.)
May sell for a price less than or buy for a price higher than the desired stop price.
Stop-limit order
Combination of a stop-loss order. (Once a stop limit order is triggered the order becomes a limit order to buy or sell.)
Price control and loss protection.
More complex. May not be executed, and can buy above stop price or sell below stop price if the market jumps quickly.
Limit order
- Buy/sell at a specific price (or better).
- May not be executed.
Market order
- Buy/sell at the current market price.
- No price control.
Stop-loss order
- Buy or sell once a specific price is reached. (Once a stop-loss order is triggered it becomes a a market order to sell.)
- Loss protection.
- May sell for a price less than or buy for a price higher than the desired stop price.
Stop-limit order
- Combination of a stop-loss order. (Once a stop limit order is triggered the order becomes a limit order to buy or sell.)
- Price control and loss protection.
- More complex. May not be executed, and can buy above stop price or sell below stop price if the market jumps quickly.
Additional Vanguard capabilities for large positions or illiquid securities:
For oversized stock or ETF orders, clients at Vanguard may request that an order be designated as “not held.” This gives Vanguard’s Block Desk the discretion to determine the optimal timing and method of execution, using advanced tools such as algorithmic strategies and access to non-displayed liquidity to minimize market impact and seek best execution.
When immediate execution is preferred, Vanguard may facilitate a negotiated trade exclusively for ETF transactions. This involves initiating a request for quote process, where multiple liquidity providers are invited to competitively quote prices. The best-priced quote is selected for execution, offering price certainty and immediate liquidity. This approach ensures flexibility and efficiency in the handling of larger ETF orders.
Eligibility and acceptance of “not held” orders requiring special handling is at the sole discretion of Vanguard Brokerage. These orders can only be facilitated over the phone. For more details, please contact a Vanguard Brokerage Block desk associate.
Limit orders: Setting parameters
A limit order is an order to buy or sell a stock at a specific price (or better) that you set. It’s like setting a budget for a stock purchase or sale. With a limit order, you’re essentially saying, “I’m willing to pay up to $X for this stock” (buy limit) or “I’m willing to sell this stock for at least $Y” (sell limit).
How it works
Buy limit orders:
- You set a maximum price you’re willing to pay for a stock (e.g., $50).
- If the stock’s market price falls to $50 or below, your order is executed at $50 or less.
- If the stock’s market price stays above $50, your order won’t be executed.
Sell limit orders:
- You set a minimum price you’re willing to sell a stock for (e.g., $60).
- If the stock’s market price rises to $60 or above, your order is executed at $60 or more.
- If the stock’s market price stays below $60, your order won’t be executed.
Limit orders ensure you get the price you want, but they don’t guarantee execution. If there’s no buyer or seller willing to meet your price, your order might not be filled.
Benefits
- Price protection. You set the minimum sale price or maximum purchase price.
- Control over order duration. You choose how long your order remains in effect—one business day or up to 60 calendar days (good-till-canceled).
https://investor.vanguard.com/investor-resources-education/online-trading/stock-order-types
