FIN 101 · Market Fundamentals · Lesson 3 of 4
Order Types & How Trades Execute
Market orders, limit orders, and the mechanics behind every trade.
Learning objectives
- Choose between market, limit, stop, and take-profit orders for a given goal
- Quantify the cost of crossing the spread
- Explain how liquidity affects execution quality
- Attach a stop + take-profit bracket to protect a position
In this lesson
The order book
Every stock has an order book — a running list of all buy orders (bids) and sell orders (asks). When a buyer's price matches a seller's price, a trade executes.
The bid is the highest price someone is willing to pay. The ask is the lowest price someone is willing to sell at. The gap between them is the spread.
Order book — AAPL
AAPL bid: $185.10 / ask: $185.12. The spread is $0.02. If you buy at market, you pay $185.12. If you sell at market, you get $185.10.
Market orders
A market order says "buy/sell right now at whatever the current price is." It guarantees execution but not price.
For highly liquid stocks (AAPL, MSFT), the price you get is almost exactly what you see. For low-volume stocks, you might get a worse price (called slippage).
Limit orders
A limit order says "buy/sell only at this price or better." You set the price, and the order waits until the market reaches it.
Buy limit: "Buy TSLA at $240 or lower" — only fills if price drops to $240.
Sell limit: "Sell NVDA at $500 or higher" — only fills if price rises to $500.
Limit orders guarantee price but not execution — the stock might never reach your price.
In live StockPrince contests, open the Trade tab and switch the ticket to Limit — your order rests until price hits your level, just like a real brokerage.
Stop orders
A stop-loss order triggers a market sell when a stock drops to a certain price. It's a safety net.
"I bought TSLA at $250. Set a stop-loss at $225." If TSLA drops to $225, it auto-sells — limiting your loss to 10%.
Stop-limit combines both: triggers at one price, but only executes at your limit price or better.
Take-profit & brackets
A take-profit order is the upside twin of a stop-loss: it sells when price rises to your target so you lock in gains without watching the screen.
Brokers often let you attach both as a bracket (also called OCO — one-cancels-the-other). If your stop fills, the take-profit cancels; if take-profit fills, the stop cancels. You define the risk and the reward before the move happens.
Example: Long AAPL at $190. Stop at $181 (−~5%). Take-profit at $205 (+~8%). One exit will win; the other cancels automatically.
On the Trade tab, select a holding and use Protect position to stage a stop + take-profit together. They share an OCO group for the contest.
How slippage eats your returns
Slippage is the difference between the price you expect and the price you actually get. It happens most with market orders on volatile or low-volume stocks.
Example: You place a market buy on a small-cap stock showing $10.00. By the time your order fills, the price has moved to $10.15. That $0.15 per share is slippage.
For liquid mega-caps (AAPL, MSFT), slippage is usually pennies. For small-caps or during earnings announcements, it can be 1-3% of the order value. Over time, slippage compounds significantly.
During market opens (9:30-9:45 AM) and major news events, spreads widen and slippage increases. If you're entering a StockPrince challenge, avoid picking low-volume stocks during these windows.
Concept
The bid-ask spread is a real, immediate cost. A market order pays the spread; the wider it is, the more you give up the instant you trade.
Spread cost (round trip)
- Ask
- lowest price a seller will accept
- Bid
- highest price a buyer will pay
- Midpoint
- (Ask + Bid) ÷ 2
In the market
Liquid large-caps trade at spreads of a few basis points; thin names can cost 1%+ just to get in and out. Limit orders let you avoid paying the spread — at the risk of not filling.
Key takeaways
- Market orders prioritize speed; limit orders prioritize price.
- The spread is an instant cost you pay with every market order.
- Liquidity determines how cheaply and reliably you can execute.
- Stop-loss and take-profit automate exits; brackets (OCO) link them so only one fills.
Scenario 1 of 3
+15 XPYou want to buy NVDA, currently trading at $480. You think it will dip to $460 before rallying. You're in no rush.
Which order type should you use?
Scenario 2 of 3
+15 XPYou own 200 shares of TSLA at $260. It's now at $285 and you want to protect your gains but also let the rally continue if it keeps going.
What order strategy works best?
Scenario 3 of 3
+15 XPIt's 9:31 AM, market just opened. A stock you want is showing bid $50.10 / ask $50.50. Yesterday's close was $50.20. The spread is unusually wide.
What should you do?
Knowledge check
+50 XP1. What is the "spread"?
2. Which order type guarantees execution but not price?
3. What does a stop-loss order do?
Apply what you learned
Practice market, limit, stop, and take-profit in a live contest Trade tab
Further reading
- 1.Trading and Exchanges: Market Microstructure for Practitioners — Larry Harris, 2003. Foundational treatment of orders, spreads, and liquidity.