🎯 In 30 seconds: A market order buys or sells right away at whatever price is available. A limit order sets the worst price you will accept and may not fill. Stop orders wait until a price is hit and then become market or limit orders. Since May 2024 most US stock trades settle one business day after the trade (T+1).
The main order types
| Order | What it does | The catch |
|---|---|---|
| Market | Fills right away at the best available price | In a fast or thin market the price can be far from the last quote |
| Limit | Buy at the limit price or lower; sell at the limit price or higher | May never fill if the price doesn’t reach your limit |
| Stop (stop-loss) | Becomes a market order once the stop price is reached | Can fill well below your stop in a sharp drop or an opening gap |
| Stop-limit | Becomes a limit order once the stop price is reached | If the price gaps past your limit, nothing sells |
| Trailing stop | Stop price follows the market up by a set percent or dollar amount, and stays put when the price falls | Normal day-to-day swings can trigger it |
Orders also have a time setting. A day order expires at the close. A good-til-canceled order stays open until filled or canceled, up to a limit your broker sets.
The bid-ask spread
The bid is the highest price someone will pay right now; the ask is the lowest price someone will sell for. The difference is the spread. If you buy at the ask and immediately sell at the bid, you lose the spread.
Big, heavily traded stocks and ETFs usually have spreads of a cent or so. Small companies, niche ETFs and options can have much wider ones. A limit order at or near the middle of the spread protects you from paying more than you meant to.
Worked example
You own 100 shares bought at $50. The stock is now $60 and you want some protection.
- Stop at $54: if the stock trades at $54, a market sell order goes in. Bad news overnight and the stock opens at $45? You likely sell near $45, not $54.
- Stop-limit at $54, limit $53: same trigger, but you won’t sell below $53. At a $45 open, nothing sells and you still own the shares as they fall.
- Trailing stop of 10%: starts at $54. If the stock climbs to $70, the stop rises to $63. If it then falls, the stop stays at $63.
No order type removes risk. Each picks which risk you would rather take: a worse price or no sale at all.
After-hours trading
Many brokers allow trading before the open and after the close. Fewer people trade then, so spreads are often wider and prices can jump around. Many brokers accept only limit orders outside regular hours. Prices you see after hours may not hold at the next open.
Settlement: T+1
Settlement is when the cash and shares actually change hands. The SEC moved the standard from two business days (T+2) to one (T+1), with compliance starting May 28, 2024. FINRA lists stocks, bonds, options, municipal securities, ETFs, certain mutual funds and US government securities among what settles on T+1.
| Sell on Tuesday | Settles Wednesday |
| Buy on Friday | Settles the next Monday (if not a holiday) |
If you pay for a purchase by bank transfer, FINRA notes the money must actually arrive by settlement date, so start the transfer on the trade date or earlier.