Investors have several options when it comes to placing an order to buy or sell shares. For example, you can place an order at a specified price. Or you can place an order that is good for one day only or for an extended period.

Understanding how different types of orders work may make a difference in whether your trade gets executed and at what price.

Market Order

A market order is an order to buy or sell a share at the current market price. Unless you specify otherwise, your order will be executed as a market order.

The advantage of a market order is you are almost always guaranteed your order will be executed, as long as there are willing buyers and sellers.

The disadvantage is the price you pay when your order is executed may not always be the price you obtained from a real-time quote service. This may be especially true in fast-moving markets where share prices are more volatile. When you place an order "at the market," particularly for a large number of shares, there is a greater chance you will receive different prices for parts of the order.

Limit Order

To avoid buying or selling a share at a price higher or lower than you wanted, you need to place a limit order rather than a market order. A limit order is an order to buy or sell a share at a specific price. A buy limit order can only be executed at the limit price or lower, and a sell limit order can only be executed at the limit price or higher. When you place a market order, you can't control the price at which your order will be filled.

For example, if you want to buy a "hot" share that was initially offered at $110, but don't want to end up paying more than $120 for the share, you can place a limit order to buy the share at any price up to $120. By entering a limit order rather than a market order, you will not be caught buying the share at $150 and then suffering immediate losses if the share drops later in the day or the weeks ahead.

Remember that your limit order may never be executed because the market price may quickly surpass your limit before your order can be filled. But by using a limit order you also protect yourself from buying the stock at too high a price.

Stop Order

A stop order is an order to buy or sell a share once the price of the share reaches a specified price, known as the stop price. When the specified price is reached, your stop order becomes a market order.

• Buy Stop Order — Investors typically use a stop order when buying share to limit a loss or protect a profit on short sales. The order is entered at a stop price that is always above the current market price.
• Sell Stop Order — A sell stop order helps investors to avoid further losses or to protect a profit that exists if a share price continues to drop. A stop order to sell is always placed below the current market price.

The advantage of a stop order is you don't have to monitor how a share is performing on a daily basis. The disadvantage is that the stop price could be activated by a short-term fluctuation in a share's price. Also, once your stop price is reached, your stop order becomes a market order and the price you receive may be much different from the stop price, especially in a fast-moving market where share prices can change rapidly. An investor can avoid the risk of a stop order not guaranteeing a specific price by placing a stop-limit order.

Stop-Limit Order

A stop-limit order is an order to buy or sell a share that combines the features of a stop order and a limit order. Once the stop price is reached, the stop-limit order becomes a limit order to buy or to sell at a specified price.

The benefit of a stop-limit order is that the investor can control the price at which the trade will get executed. But, as with all limit orders, a stop-limit order may never get filled if the share's price never reaches the specified limit price. This may happen especially in fast-moving markets where prices fluctuate wildly.