You are reading the 2026 curriculum (exams up to November 2026). Sitting in February 2027 or later? Go to the 2027 Equities guide.
Market, limit and stop orders
A market order trades now at the best available price. A limit order trades only at the limit price or better, so it may not trade at all. Every order carries execution instructions (how to fill), validity instructions (when, including stop conditions) and clearing instructions (how to settle).
Before this: Long, short and margin positions
On the exam
- Compare execution, validity, and clearing instructions
- Compare market orders with limit orders
Compare execution, validity and clearing instructions, and compare market orders with limit orders. Expect to classify a limit order against the current quote, tell a stop price from a limit price, and sort an instruction into execution, validity or clearing.
How deeply to learn each part
- Know the idea
- Understand it in general. It frames other topics, but you will not calculate with it.
- Use it
- Understand it well enough to solve a question with it. Recognize when it applies.
- Memorize
- Learn it by heart. The exam will not give it to you.
You know this one. The full lesson is folded away. The takeaways, formulas and checkpoint below are your quick refresher, and the checkpoint is a fair test of whether you still do.
You tested strong here. The full lesson is folded away. The takeaways, formulas and checkpoint below are your quick refresher, and the checkpoint is a fair test of whether you still know it.
How do a market order and a limit order differ?
A market order asks for the best price available right now. A limit order asks for the best price available but never worse than a limit you set.
First the vocabulary of a quote. A bid is a price at which someone will buy and an ask (or offer) is a price at which someone will sell, and the ask is always higher. The highest bid is the best bid and the lowest ask is the best offer . The gap between them is the market bid–ask spread , an implicit cost of trading. Traders who post prices make the market. Traders who accept them take the market.
| Market order | Limit order | |
|---|---|---|
| Instruction | Best price available now | Best price available, but never worse than the limit |
| Execution | Almost certain and immediate | Uncertain, may never fill |
| Price | Uncertain: large orders in thin markets pay price concessions | Known worst case |
| Main risk | Paying too much (or selling too cheaply) | Missing the trade, usually when the price runs away |
A market order buys certainty of execution. A limit order buys certainty of price. A buy limit order fills at the limit or lower, because the first instruction is still to get the best price available.
- 1Best bid and best offer make the market. The highest buy order (41.20) and the lowest sell order (41.35). The gap between them, 0.15, is the market bid–ask spread.
- 2Inside the spread: a new order here makes a new market. A buy limit at 41.25 or 41.30 becomes the new best bid; a sell limit there becomes the new best offer.
- 3A buy limit at or above 41.35 is marketable. A buy limit at 41.40 reaches the offers, so at least part of it trades at once, at the best offers available up to 41.40.
- 4Orders below the best bid are behind the market. Buy limits at 41.15 down to 41.05 wait until the price falls to them. They may never trade.
- 5Far from the market. A buy at 40.90 or a sell at 41.65 is unlikely to fill soon, but if it does, the price is a good one for the order's owner.
- 6A stop is a trigger, not a price. A sell stop at 38.00 does nothing until the price trades at or below 38.00. The share closes at 39.00 and opens at 35.00 after bad news: the stop triggers and the market order fills near 35.00, not at 38.00.
Exam tip ”Limit” caps the price you accept. If better prices exist, you should get them.
Where does a limit order sit?
That depends on how the limit compares with the current quote. The more aggressive the limit, the more likely it fills and the worse the price.
Use one quote throughout: best bid USD 41.20, best offer USD 41.35.
| A buy limit at… | Called | Result |
|---|---|---|
| 41.40 (above the best offer) | marketable limit order | Trades now at 41.35, up to the size offered |
| 41.30 (between bid and offer) | Makes a new market | Becomes the new best bid |
| 41.20 (at the best bid) | Makes the market | Joins the queue at that price |
| 41.00 (below the best bid) | behind the market | Waits, and trades only if prices fall |
- At or above the best offer Memorize marketable: trades now
- Between best bid and best offer Memorize makes a new market (new best bid)
- At the best bid Memorize makes the market, joins the queue
- Below the best bid Memorize behind the market, waits
Sell limits mirror this. A sell limit below the best bid is marketable. A sell between the bid and offer makes a new market, and one above the best offer is behind the market. Standing limit orders make the market. Market orders and marketable limit orders take it.
What are execution, validity and clearing instructions?
Execution instructions say how to fill an order, validity instructions say when it may fill, and clearing instructions say how to settle it.
- Execution Memorize how to fill
- Market best price available now
- Limit never worse than the limit price
- All-or-nothing, minimum fill size conditions
- Hidden, iceberg exposure: hide all or show a display size
-
- Validity Memorize when it may fill
- Day, good-till-cancelled how long the order lives
- Immediate or cancel (fill or kill) only on receipt
- Good-on-open, good-on-close only at the open or close
- Stop valid only after a trigger trade
-
- Clearing Memorize how to settle
- Settling broker or custodian standing instruction
- Long sale or short sale required on every sell order
-
| Type | Answers | Examples |
|---|---|---|
| execution instructions | How to fill | Market, limit, all-or-nothing orders , minimum fill size, hidden order , iceberg order (display size) |
| validity instructions | When it may fill | day order , good-till-cancelled order , immediate or cancel order (fill or kill), good-on-open, good-on-close (market-on-close), stop |
| clearing instructions | How to settle | Which broker or custodian settles. For sell orders, whether it is a long sale or a short sale |
A hidden order is shown only to the broker or exchange that receives it. An iceberg order shows only a display size and hides the rest. Large traders use both because they fear others will trade against them if they see the size.
Go deeper Why large traders hide size, and how others find it
If the market knew a big buyer was working, sellers would raise their prices. Hiding the order prevents that, at a cost: nobody can see that a large trade is available, so fewer people respond. The only way to find hidden size is to send an order that trades with it, so the discovery comes after the trade, not before.
What is a stop order, and how does it differ from a limit?
A stop order contains a trigger. It cannot fill until the market trades through the stop price. After that it becomes a normal order, subject to its other instructions.
A sell stop becomes active after a trade at or below the stop price. A buy stop becomes active after a trade at or above it. Take an investor who bought a share at 45.00 and enters “GTC, stop 38.00, market sell”. If the price gaps from 39 to 35, the order is triggered and becomes a market order, which fills near 35. The stop price is therefore not a guaranteed sale price. Adding a limit (“stop 38, limit 36”) sets a floor, but now the order may not sell at all.
| Limit price | Stop price | |
|---|---|---|
| Role | Worst price you will accept | Trigger for the order to become active |
| Sell | Sell at or above the limit | Active after a trade at or below the stop |
| Buy | Buy at or below the limit | Active after a trade at or above the stop |
Because sell stops trigger in falling markets and buy stops in rising ones, stop orders add to momentum, and their execution prices are often poor.
Go deeper Using a stop-buy to wait for confirmation
A manager who thinks a share is worth much more than its price may place a buy stop above the market, so the order only becomes active if other traders push the price up. If the manager relies on the market’s move in place of research, there may be a problem with Ethics Standard V(A), which requires a reasonable and adequate basis for every investment action.
Go deeper Options as guaranteed limit orders
Buying a put with a strike of 38 locks in the right to sell at 38 however far the share falls, which no stop order can promise. The premium is what that certainty costs. Think of the put as a sell limit at 38 that is sure to be filled.
Memorize this
MemorizeMarket versus limit
| Market order | Limit order | |
|---|---|---|
| Instruction | best price now | best price, never worse than limit |
| Execution | almost certain | uncertain, may never fill |
| Price | uncertain, price concessions | worst case known |
| Main risk | paying too much | missing the trade |
Memory hook Market buys certainty of execution. Limit buys certainty of price.
Know it cold A buy limit fills at the limit or lower. It is not an order to trade exactly at the limit.
MemorizeLimit versus stop
| Limit price | Stop price | |
|---|---|---|
| Role | worst acceptable price | trigger for the order to become active |
| Sell | at or above the limit | after a trade at or below the stop |
| Buy | at or below the limit | after a trade at or above the stop |
Memory hook Limit = a price condition. Stop = a trigger. Execution = how, validity = when, clearing = settle.
Know it cold A triggered stop becomes a market order unless it also has a limit. It does not guarantee the stop price.
- Execution Memorize how to fill
- Market best price available now
- Limit never worse than the limit price
- All-or-nothing, minimum fill size conditions
- Hidden, iceberg exposure: hide all or show a display size
-
- Validity Memorize when it may fill
- Day, good-till-cancelled how long the order lives
- Immediate or cancel (fill or kill) only on receipt
- Good-on-open, good-on-close only at the open or close
- Stop valid only after a trigger trade
-
- Clearing Memorize how to settle
- Settling broker or custodian standing instruction
- Long sale or short sale required on every sell order
-
- At or above the best offer Memorize marketable: trades now
- Between best bid and best offer Memorize makes a new market (new best bid)
- At the best bid Memorize makes the market, joins the queue
- Below the best bid Memorize behind the market, waits
How it is asked
-
Classify a limit order
Best bid 41.20, best offer 41.35. A buy limit at 41.30 is…
Inside the spread: makes a new market. Trap: marketable (needs 41.35 or higher).
-
Stop order outcome
"GTC, stop 38.00, market sell" and the share opens at 35.20. Fill?
Triggered, becomes a market order, fills near 35.20. Trap: filled at 38.00.
-
Sort the instruction
Which is a validity instruction: all-or-nothing, immediate-or-cancel, iceberg?
Immediate-or-cancel (when). The other two say how to fill.
Exam traps
- Believing a limit order always trades at its limit price. It trades at the limit or better.
- Mixing up limit and stop. The limit is a price condition. The stop is a trigger.
- Assuming a stop-loss sell guarantees the stop price. Once triggered it is a market order.
- Filing good-till-cancelled under execution instead of validity.
Checkpoint
3 exam-style questions. About 90 seconds each.
1The best bid for a share is USD 41.20 and the best offer is USD 41.35. A new limit order to buy at USD 41.30 is best described as:
2A trader enters "GTC, stop 38.00, market sell" on a share now at 40.00. The share closes at 39.10 and opens the next day at 35.20 after bad news. The order is most likely:
3Which of the following is a validity instruction?
Key takeaways
- Market orders buy certainty of execution. Limit orders buy certainty of price.
- A buy limit at or above the best offer is marketable. Below the best bid it is behind the market.
- Execution = how, validity = when, clearing = how to settle.
- A stop is a trigger, not a price guarantee.
Questions about this lesson?
Where this comes back
- Primary and secondary equity markets: issuing shares and why trading matters Equity Issuance and Trading
- Guidance for Standards I–VII Ethical and Professional Standards
Questions candidates ask
What is the difference between a market order and a limit order?
A market order trades immediately at the best price available. A limit order trades only at the limit price or better, so it controls price but may not execute.
What is a marketable limit order?
A buy limit priced at or above the best offer (or a sell limit at or below the best bid). At least part of it can trade immediately.
Does a stop-loss order guarantee the stop price?
No. Once triggered it becomes a market order, unless it also has a limit, and fills at the best price then available, which can be much worse.
Spotted an error? Tell us and we will fix it.