What is the difference between a limit order and a stop order?

A limit order waits for a better price than the current one. A stop order waits for the price to move through a level, then trades at the market.

Blog / Beginner

Limit Orders vs Stop Orders: The Four Pending Orders Explained

Buy limit, sell limit, buy stop and sell stop explained with simple examples, when to use each and the common mistakes beginners make.

Market orders and pending orders

A market order buys or sells right now at the best available price. A pending order waits until the price reaches a level you choose, then it turns into a trade. There are four pending orders, and they come in two families: limit orders and stop orders.

Limit orders: buy low, sell high

A buy limit is placed below the current price. You want to buy cheaper, on a pullback. A sell limit is placed above the current price. You want to sell higher, into resistance. A limit order never fills at a worse price than you set, which makes it good for entering at a level you have planned.

Stop orders: trade the break

A buy stop is placed above the current price. You want to buy when the market breaks higher. A sell stop is placed below the current price. You want to sell when the market breaks lower. A stop order fills at the market once your level is touched, so in a fast move it can fill at a slightly worse price.

A quick way to remember

If you are buying below the price or selling above it, it is a limit. If you are buying above the price or selling below it, it is a stop. The word stop here is not the same as a stop loss. A stop loss is a protective order attached to a trade that is already open.

Common mistakes

Placing a limit order on the wrong side of the market means it fills immediately at the market. Forgetting to cancel an old pending order can open a trade you no longer want. Always add a stop loss and know how much you risk if the order fills.

Practise on a chart

On the ScaleEdge chart you can right-click, or long-press on a phone, at a price to place a limit or stop order, then drag the order line, stop loss and take profit. It uses virtual money, so you can learn how each one behaves.

Key takeaways

Limit: buy below or sell above the price.
Stop: buy above or sell below the price.
A stop order fills at the market once triggered.
Always attach a stop loss.

FAQ

What is the difference between a limit order and a stop order? A limit order waits for a better price than the current one. A stop order waits for the price to move through a level, then trades at the market.

Educational content, not financial advice.