The Four Order Types You'll Use
Market Order — An instruction to buy or sell now, at the best available price at that moment. In liquid stocks during normal market hours, it executes at roughly the price visible on screen. The risk surfaces at market opens (9:30am ET), in low-volume stocks, and during unexpected news events.
Limit Order — An instruction to buy at a maximum or sell at a minimum specified price. If the market doesn't reach that price, the order doesn't execute. This order gives control over the execution price but doesn't guarantee the trade happens. It's the right tool for most trades. The most common mistake: setting the limit price too far from the current market price trying to "buy cheaper" in a stock that keeps rising — the order never executes and the signal is missed.
Stop Order — An instruction that triggers automatically when the price reaches a defined level, at which point it becomes a market order. Used primarily for stop losses: if the price falls to the stop level, the position is sold automatically. Without an active stop order, a stop loss is just an intention.
Stop-Limit Order — A stop variant: when triggered, it generates a limit order instead of a market order. The specific risk: if the price drops very quickly and passes the stop-limit level without buyers at the limit price, the order doesn't execute. For closing risk positions, a standard stop is often more reliable.
Slippage: The Invisible Cost
Slippage is the difference between the expected price of a trade and the price at which it actually executes. It happens primarily in three situations:
- Low volume. In stocks with low daily volume, the order itself can move the price. A $10,000 purchase in a stock that trades $50,000 daily may execute at progressively worse prices.
- Market open. The first minutes after 9:30am ET concentrate a disproportionate number of accumulated orders. Spreads are wide, volatility is high, and executions are unpredictable.
- Unexpected news or events. An earnings surprise or macro event can cause the price to jump suddenly without passing through intermediate prices.
The simplest way to minimize slippage: trade stocks with adequate daily volume, use limit orders for entries, and avoid trading at the open.
US Market Hours
The American market operates in regular hours from 9:30am to 4:00pm ET. Outside those hours there are two extended sessions:
- Pre-market: 4:00am to 9:30am ET. Very low volume, wide spreads, sharper moves. Many companies publish earnings before the open.
- After-hours: 4:00pm to 8:00pm ET. Same conditions as pre-market. For investors working with momentum scanner signals, placing orders in these sessions adds execution risk that's rarely justified.
The Real Cost of a Trade
The commission charged by major US brokers is now zero for most stock trades. But "zero commission" doesn't mean zero cost.
The real cost is in the bid-ask spread: the difference between the available buying price and the available selling price. In a liquid stock like Apple, that spread may be $0.01. In a low-liquidity stock, it can be $0.50 or more — representing an immediate cost on every trade, before the price moves a cent.