Lesson 2.2
Buy limit vs buy stop: order types explained
Market, limit, stop and stop-limit orders explained for beginners, with a gold example and a simple picture of where each order goes and when it fills.
Short answer: a market order buys or sells right now. A limit order waits for a better price: a buy limit sits below the current price, a sell limit above it. A stop order waits for the price to break through a level: a buy stop sits above the current price, a sell stop below it.
The picture that makes it click
Above the current price: 4050
Below the current price: 4030
The order types, one by one
| Order | Where it goes | Fills when | Used when you expect |
|---|---|---|---|
| Market buy / sell | — | Straight away, at the current price | Nothing more: you want in now |
| Buy limit | Below the current price | Price falls to your level | A dip, then a move up |
| Sell limit | Above the current price | Price rises to your level | A rise, then a move down |
| Buy stop | Above the current price | Price rises to your level | A breakout upwards |
| Sell stop | Below the current price | Price falls to your level | A breakdown downwards |
Anything other than a market order is a pending order: it sits and waits until price reaches it, or until you cancel it or it expires.
Buy limit vs buy stop
Both are buy orders that wait for a price. The difference is the direction price has to move first.
| Buy limit | Buy stop | |
|---|---|---|
| Placed | Below the current price | Above the current price |
| You’re thinking | “It’ll come back down to here, then rise” | “If it gets above here, it’ll keep rising” |
| Gold at 4040, order at | 4030 | 4050 |
| Fills at | Your price or better | Your price, or worse in a fast market |
| Main risk | Price never comes back, so it never fills | Price breaks out, then reverses straight away |
Stop-limit orders
MetaTrader 5 also offers a buy stop limit and a sell stop limit. It’s a stop order that turns into a limit order.
Example: gold at 4040. You set a buy stop limit with a stop price of 4050 and a limit price of 4048. When gold reaches 4050, a buy limit at 4048 is placed. You only buy if price breaks above 4050 and then dips back to 4048. It’s useful for “wait for the breakout, then buy the pullback”, but it often doesn’t fill at all.
Why limit and stop orders fill differently
A limit order can only fill at your price or a better one. That’s its promise, and also its weakness: if price never quite reaches your level, you don’t get in.
A stop order turns into a market order when your level is hit. In a calm market it fills at or near your price. In a fast one (news, the weekly open) it fills at the next available price, which can be worse. That’s called slippage.
How trade ideas use them
Many trade ideas are effectively pending orders. “Buy 4030 to 4034” posted while gold is at 4040 is a buy limit idea: you wait for the dip. Some analysts post their limit orders ahead of time, so people who can’t watch the screen can place them and walk away.
Whatever the order type, it should carry its stop loss and take profit from the moment you place it, not added later.
Mistakes beginners make
- Mixing up a stop order and a stop loss. A buy stop opens a trade. A stop loss closes one.
- Putting the order on the wrong side of the price. A buy limit above the current price isn’t a valid buy limit; MetaTrader will reject it or you’ll need a different order type.
- Leaving old pending orders behind. If the idea is no longer valid, cancel the order. Otherwise it can fill days later in a completely different market.
- No stop loss on the pending order. If it fills while you’re asleep, you want the stop already in place.
Key points
- Market order: now. Limit order: a better price. Stop order: a breakout.
- Buy limit below the price, sell limit above. Buy stop above the price, sell stop below.
- Limit orders may not fill; stop orders may fill worse than planned.
- Every pending order should have its stop loss attached.
Next: what a stop loss is, and why it goes where the idea is wrong rather than where the loss feels comfortable.