A buy limit order is used when an investor wants to open a long position in a stock at a certain price, while a stop order is used by an investor who wants to lock in profits or limit losses by exiting a position. A stop order is also known as a stop loss order if it is being used to limit the amount of losses on a stock trade. A stop order can be used to exit a long or short position in a security. It does not only apply to long positions.

Buy limit orders are not guaranteed to fill. If the stock never falls to the limit price, the order is not filled. Further, many investors place time limits on how long the limit order is in effect. Limit orders can cancel automatically if not filled during a set time.

Stop orders can be used by investors in a number of ways. A stop order may be of benefit to an investor who is unable to monitor a stock position closely. A stop order may also take some of the emotion out of trading by allowing the investor to exit a position automatically at a certain price. Investors should be aware that a stop order is not guaranteed to fill. The stock can gap above or below the stop order and not trigger the order at the limit price.

A stop loss order is different, as it becomes a market order once the price goes below the price set. Thus, a stock that gaps below a limit sell stop then automatically becomes a market order. This can result in a substantially worse fill. A gap occurs on a stock chart where there is a space between bars in the price, during which time no shares traded. It's common for a stock to gap above or below the prior day’s close. Investors need to understand the risk they are taking with different order types.

  1. What is the difference between a stop order and a stop limit order?

    Learn the differences between a stop order and a stop limit order. Traders use these as stop losses and regular investors ... Read Answer >>
  2. What is the difference between a buy limit and a sell stop order?

    Understand the differences between the two order types, a buy limit order and a sell stop order, and the purposes each one ... Read Answer >>
  3. What happens to a stop order after a stock splits?

    A stop order (or stop-loss order) is executed when a security reaches a pre-determined price as a market order. Learn what ... Read Answer >>
  4. Why can't I enter two sell orders on the same stock?

    The limitation on sell orders protects investors. Learn 3 reasons why you can't enter multiple sell orders and the downsides ... Read Answer >>
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  1. Stop Order

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  2. Bracketed Buy Order

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  3. Fill

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  4. Stopped Order

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  5. Stop-Limit Order

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