By the end of this lesson you distinguish a market order, a limit order, and a stop order, and understand what each one controls: price or certainty of execution.
\nAn order is the instruction you give your broker to buy or sell an asset, specifying what you want, how much, and under what conditions. Not all orders behave the same way -- the main difference between the three basic types is what they prioritize: certainty that the trade will happen, or control over the price at which it happens.
\nA market order executes immediately at the best price available at that moment. It prioritizes certainty of execution above everything else: you know the trade will happen, but you don't know exactly at what price until it has already executed. In liquid, stable markets the difference is usually minimal; in volatile or illiquid markets, it can be significant.
\nA limit order does just the opposite: you set in advance the maximum price you're willing to pay (if buying) or the minimum price you'll accept (if selling), and the order only executes if the market reaches that price or a better one. It prioritizes price control over certainty -- if the market never reaches that level, the order simply doesn't execute, and it can remain pending indefinitely.
\nA stop order is conditional: it stays inactive until the price reaches a trigger level you define, and at that point it activates and starts behaving like a market order. It's mainly used to limit losses -- for example, automatically selling if the price falls below a threshold you're no longer willing to tolerate -- or to protect gains already made without having to watch the price constantly.
\nIf you want to buy right now, regardless of the exact price at that instant, you'd use a market order. If you only want to buy if the price drops to a specific level you consider attractive, you'd use a limit order. If you already hold a position and want to sell it automatically if the price falls below a level you'd mark as an unacceptable loss, you'd use a stop order.
\nThe three basic order types balance certainty of execution and price control differently: the market order prioritizes certainty, the limit order prioritizes price, and the stop order activates conditionally to limit losses or protect gains.
\nWhat order type would you use if you want to buy right now, regardless of the exact price?
\nWhy can a limit order end up never executing?
","sortOrder":1,"readingMinutes":5,"difficulty":"Básico"},"previous":null,"next":{"id":15,"moduleId":5,"slug":"how-is-an-order-executed-on-an-exchange","title":"How is an order executed on an exchange?","summary":"You understand what happens between sending an order and having the trade settled: the role of the broker and the market.","bodyMarkdown":"## Objectives\n\nBy the end of this lesson you understand what happens between sending an order and having the trade settled, and what role the broker and the market play in that process.\n\n## Content\n\nWhen you send an order, your broker isn't the one buying from or selling to you directly -- its role is to transmit your order to the market, where a real counterparty is found: someone willing to do the opposite trade to yours (a seller if you're buying, a buyer if you're selling).\n\nWhen the market finds that counterparty and the price matches -- depending on the order type you used, see the previous lesson -- the trade is considered **executed**: both parties have agreed to the exchange. But execution isn't the same as settlement.\n\n**Settlement** is the subsequent process in which ownership of the securities and the corresponding money is formally transferred between the buyer's and seller's accounts, handled by a clearinghouse. This process isn't instantaneous -- it traditionally takes a couple of business days after execution, though the exact timeframe varies by market. While a trade is executed but not yet settled, for practical purposes it's already considered yours -- you could even sell it again -- but formally, the change of ownership hasn't been completed yet.\n\n## Example\n\nYou send a market order to buy shares on a Monday morning: it executes almost instantly, as soon as the market finds a seller at the best available price. Actual settlement -- the formal transfer of the securities and money between accounts -- completes a few days later, not at the exact moment of execution.\n\n## Common mistakes\n\n- Thinking execution and settlement are the same thing -- execution is the moment the trade is agreed; settlement is the actual transfer that follows, handled by a clearinghouse.\n- Believing the broker is the counterparty to your trade -- the broker only transmits your order to the market; the real counterparty is another market participant willing to take the opposite side.\n\n## Summary\n\nAn order goes from the broker to the market, where it executes once a real counterparty is found at the right price, and it settles -- with the formal transfer of securities and money -- a few days after that execution.\n\n## Self-check\n\nWhat's the difference between an order executing and it settling?\n\nIs the broker the counterparty to your trade? Why or why not?","bodyHtml":"By the end of this lesson you understand what happens between sending an order and having the trade settled, and what role the broker and the market play in that process.
\nWhen you send an order, your broker isn't the one buying from or selling to you directly -- its role is to transmit your order to the market, where a real counterparty is found: someone willing to do the opposite trade to yours (a seller if you're buying, a buyer if you're selling).
\nWhen the market finds that counterparty and the price matches -- depending on the order type you used, see the previous lesson -- the trade is considered executed: both parties have agreed to the exchange. But execution isn't the same as settlement.
\nSettlement is the subsequent process in which ownership of the securities and the corresponding money is formally transferred between the buyer's and seller's accounts, handled by a clearinghouse. This process isn't instantaneous -- it traditionally takes a couple of business days after execution, though the exact timeframe varies by market. While a trade is executed but not yet settled, for practical purposes it's already considered yours -- you could even sell it again -- but formally, the change of ownership hasn't been completed yet.
\nYou send a market order to buy shares on a Monday morning: it executes almost instantly, as soon as the market finds a seller at the best available price. Actual settlement -- the formal transfer of the securities and money between accounts -- completes a few days later, not at the exact moment of execution.
\nAn order goes from the broker to the market, where it executes once a real counterparty is found at the right price, and it settles -- with the formal transfer of securities and money -- a few days after that execution.
\nWhat's the difference between an order executing and it settling?
\nIs the broker the counterparty to your trade? Why or why not?
","sortOrder":2,"readingMinutes":5,"difficulty":"Básico"},"pathContext":null,"curatedLinks":{"prerequisite":[],"continuation":[],"related":[]},"relatedConcepts":[{"concept":{"id":16,"slug":"market-order","term":"Market order","shortDefinition":"An instruction to buy or sell immediately at the best price currently available -- it guarantees execution, not the exact price.","longDefinition":"A market order executes almost immediately because it accepts whatever the best price in the market happens to be at that moment. It's the order type to choose when getting the trade done right away matters more than controlling the exact price. In markets with low liquidity or high volatility, the final price can differ noticeably from the last price seen before sending the order."}},{"concept":{"id":17,"slug":"limit-order","term":"Limit order","shortDefinition":"An instruction to buy or sell only at a specified price or better -- it guarantees the price, not execution.","longDefinition":"A limit order sets the maximum price you're willing to pay (on a buy) or the minimum you're willing to accept (on a sell). If the market never reaches that price, the order simply doesn't execute -- it can remain pending indefinitely or expire depending on the conditions set. It's the order type to choose when controlling the price matters more, accepting the risk that the trade may never happen."}},{"concept":{"id":18,"slug":"stop-order","term":"Stop order","shortDefinition":"An instruction that activates only once the price reaches a level you define, at which point it becomes a market order.","longDefinition":"A stop order stays inactive until the asset's price reaches a pre-set trigger level; at that point it activates and behaves like a market order, seeking execution at the best available price. It's commonly used to limit losses (automatically selling if the price falls below a threshold) or to protect gains already made. Unlike a limit order, it doesn't set an exact execution price -- only the condition that triggers it."}}]}