Investor Assistance (800) 732-0330 www.investor.gov

Investor BulletIn

trading Basics

understanding the Different Ways to Buy and sell stock

The seC’s office of Investor education and Advocacy 

is issuing this Investor Bulletin to help educate investors 

about the different types of orders they can use to buy 

and sell stocks through a brokerage firm. The following 

are general descriptions of some of the common order 

types and trading instructions that investors may use to 

buy and sell stocks. Please note that some of the order 

types and trading instructions described below may not 

be available through all brokerage firms. Furthermore, 

some brokerage firms may offer additional order types 

and trading instructions not described below. Investors 

should contact their brokerage firms to determine which

types of orders and trading instructions are available 

for buying and selling as well the firms’ specific policies 

regarding such available orders and trading instructions. 

Market and Limit Orders

The two most common order types are the market 

order and the limit order.

Market Order

A market order is an order to buy or sell a stock at the 

best available price. Generally, this type of order will 

be executed immediately. However, the price at which 

a market order will be executed is not guaranteed. It is 

important for investors to remember that the last-traded 

price is not necessarily the price at which a market order 

will be executed. In fast-moving markets, the price at 

which a market order will execute often deviates from 

the last-traded price or “real time” quote. 

Example: An investor places a market order to buy 

1000 shares of XYZ stock when the best offer price 

is $3.00 per share. If other orders are executed first, 

the investor’s market order may be executed at a 

higher price. 

In addition, a fast-moving market may cause parts of 

a large market order to execute at different prices. 

Example: An investor places a market order to buy 

1000 shares of XYZ stock at $3.00 per share. In a 

fast-moving market, 500 shares of the order could 

execute at $3.00 per share and the other 500 shares 

execute at a higher price. 

Limit Order

A limit order is an order to buy or sell a stock at a specific 

price or better. 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. A limit order 

is not guaranteed to execute. A limit order can only be 

filled if the stock’s market price reaches the limit price. 

While limit orders do not guarantee execution, they help 

ensure that an investor does not pay more than a predetermined price for a stock.
Investor Assistance (800) 732-0330 www.investor.gov

2

Example: An investor wants to purchase shares of 

ABC stock for no more than $10. The investor could 

place a limit order for this amount that will only 

execute if the price of ABC stock is $10 or lower.

Special Orders and Trading Instructions

In addition to market and limit orders, brokerage firms 

may allow investors to use special orders and trading 

instructions to buy and sell stocks. The following are 

descriptions of some of the most common special orders 

and trading instructions. 

Stop Order

A stop order, also referred to as a stop-loss order, is an 

order to buy or sell a stock once the price of the stock 

reaches a specified price, known as the stop price. When 

the stop price is reached, a stop order becomes a market 

order. A buy stop order is entered at a stop price above 

the current market price. Investors generally use a buy 

stop order to limit a loss or to protect a profit on a stock 

that they have sold short. A sell stop order is entered 

at a stop price below the current market price. Investors 

generally use a sell stop order to limit a loss or to protect 

a profit on a stock that they own.

Before using a stop order, investors should consider the

following:

n short-term market fluctuations in a stock’s price 

can activate a stop order, so a stop price should be 

selected carefully.

n The stop price is not the guaranteed execution price 

for a stop order. The stop price is a trigger that 

causes the stop order to become a market order. 

The execution price an investor receives for this 

market order can deviate significantly from the stop 

price in a fast-moving market where prices change 

rapidly. An investor can avoid the risk of a stop 

order executing at an unexpected price by placing a 

stop-limit order, but the limit price may prevent the 

order from being executed.

n For certain types of stocks, some brokerage firms 

have different standards for determining whether a 

stop price has been reached. For these stocks, some 

brokerage firms use only last-sale prices to trigger a 

stop order, while other firms use quotation prices. 

Investors should check with their brokerage firms 

to determine the specific rules that will apply to 

stop orders.

Stop-limit Order

A stop-limit order is an order to buy or sell a stock that 

combines the features of a stop order and a limit order. 

once the stop price is reached, a stop-limit order becomes 

a limit order that will be executed at a specified price 

(or better). The benefit of a stop-limit order is that the 

investor can control the price at which the order can 

be executed.

Before using a stop-limit order, investors should consider 

the following:

n As with all limit orders, a stop-limit order may not 

be executed if the stock’s price moves away from 

the specified limit price, which may occur in a 

fast-moving market.

n short-term market fluctuations in a stock’s price 

can activate a stop-limit order, so stop and limit 

prices should be selected carefully. 

n The stop price and the limit price for a stop-limit 

order do not have to be the same price. For example, 

a sell stop limit order with a stop price of $3.00 may 

have a limit price of $2.50. such an order would 

become an active limit order if market prices reach 

$3.00, although the order could only be executed 

at a price of $2.50 or better.
n For certain types of stocks, some brokerage firms 

have different standards for determining whether the 

stop price of a stop-limit order has been reached. For 

these stocks, some brokerage firms use only last-sale 

prices to trigger a stop-limit order, while other firms 

use quotation prices. Investors should check with 

their brokerage firms to determine the specific rules 

that will apply to stop-limit orders.

Day Orders, Good-Til-Cancelled Orders, 

and Immediate-Or-Cancel Orders

Day orders, Good-til-Cancelled (GtC) orders, and 

Immediate-or-Cancel (IoC) orders represent timing 

instructions for an order and may be applied to either 

market or limit orders. unless an investor specifies a 

time frame for the expiration of an order, orders to buy 

and sell a stock are Day orders, meaning they are good 

only during that trading day. 

A GTC order is an order to buy or sell a stock that lasts 

until the order is completed or cancelled. Brokerage firms 

typically limit the length of time an investor can leave a 

GtC order open. This time frame may vary from broker 

to broker. Investors should contact their brokerage firms 

to determine what time limit would apply to GtC orders. 

An IOC order is an order to buy or sell a stock that must 

be executed immediately. Any portion of the order that 

cannot be filled immediately will be cancelled.

Fill-Or-Kill and All-Or-None Orders

two other common special order types are Fill-Or-Kill 

(FOK) and All-Or-None (AON) orders. An FoK order 

is an order to buy or sell a stock that must be executed 

immediately in its entirety; otherwise, the entire order 

will be cancelled (i.e., no partial execution of the order is 

allowed). An Aon order is an order to buy or sell a stock 

that must be executed in its entirety, or not executed at 

all. However, unlike the FoK orders, Aon orders that 

cannot be executed immediately remain active until they 

are executed or cancelled.

Opening Transactions

Investors should be aware that any order placed outside 

of regular trading hours and designated for trading only 

during regular hours will usually be eligible to execute 

at an opening price. Investors should contact their 

brokerage firms to find out their broker’s policies 

regarding opening transactions.

Related Information

For additional educational information for investors, see 

the seC’s office of Investor education and Advocacy’s 

homepage. For additional information relating to the 

types of orders investors may use to buy or sell stock, 

please read our publication “orders.”

The Office of Investor Education and Advocacy has provided this information as a service to investors. 

It is neither a legal interpretation nor a statement of SEC policy. If you have questions concerning the 

meaning or application of a particular law or rule, please consult with an attorney who specializes in 

securities law.

SEC Pub. No. 141 (3/11)