Market, limit and stop orders differ in what governs execution. According to FINRA's investor page on order types, a market order generally executes at or near the current bid or ask prices, a limit order can execute only on the permitted side of its limit price, and a stop order automatically becomes a market order once its stop price is reached. This explainer sets out what that page and FINRA's regulatory notice on stop orders state, keeps our own reading separate and labeled, and marks where the cited material ends.
How a market order works
FINRA's investor page on order types states the following about market orders:
- Brokerage firms typically enter an order as a market order unless the investor specifies otherwise.
- A market order generally executes at or near the current bid or ask prices during normal trading hours, 9:30 a.m. to 4 p.m. Eastern Time.
- Market orders typically receive the highest priority, followed by limit orders.
The FINRA notice on stop orders adds a statement about firms' obligations: firms must execute a market order fully and promptly at the current market price.
Our reading, not a statement from the sources: the qualifying words carry weight. The investor page says "typically" about the default order entry and about priority, and "generally" and "at or near" about the execution price. The cited text does not name a specific price that a market order will receive, and it does not explain how priority between orders is decided. The default-entry statement describes what brokerage firms typically do; it does not describe what any particular firm does.
How a limit order works
The FINRA investor page defines the price boundary of a limit order by side:
- A buy limit order can execute only at or below the limit price.
- A sell limit order can execute only at or above the limit price.
The same page describes one time condition that can apply to orders: day orders expire at the end of the trading day if they are not executed.
Our reading, not a statement from the sources: for a buyer, the limit price works as a ceiling on the execution price; for a seller, it works as a floor. That paraphrase only restates the rule above. The cited claims do not say how likely a limit order is to execute, how long a limit order without a time condition stays active, or what happens to the part of an order that is not executed.
How a stop order and a stop limit order work
Both FINRA sources describe what happens when a stop price is reached. The investor page on order types states that when the stop price is reached, a stop order automatically becomes a market order and is executed as soon as possible at the current market price. The FINRA notice on stop orders states that a stop order becomes a market order when the stop price is reached, and that firms must execute a market order fully and promptly at the current market price.
The same notice also states:
- For a buy stop order, the stop price is above the current market price; for a sell stop order, it is below the current market price.
- FINRA Rule 5350 requires a stop order to be triggered by a transaction at the stop price rather than by another trigger such as a quotation.
- A stop limit order becomes a limit order when the stock reaches the stop price.
Our reading, not a statement from the sources: in the descriptions above, the stop price is the point at which the order converts. Once a stop order converts, the market order description in the first section is the one that applies. The cited claims do not describe the stop price as the execution price. For a stop limit order, the conversion is into a limit order, so after the trigger the buy and sell limit boundaries described in the previous section are the relevant description.
Market vs limit vs stop orders side by side
The table below places the supported statements next to each other. It summarizes the sources and adds no new rule.
| Order type | What the cited sources state | Source |
|---|---|---|
| Market order | Generally executes at or near the current bid or ask prices during normal trading hours, 9:30 a.m. to 4 p.m. Eastern Time; firms must execute a market order fully and promptly at the current market price | FINRA investor page and FINRA notice |
| Limit order | A buy limit order executes only at or below the limit price; a sell limit order only at or above it | FINRA investor page |
| Stop order | Becomes a market order when the stop price is reached; buy stop price above the current market price, sell stop price below it; triggered by a transaction at the stop price under FINRA Rule 5350 | FINRA investor page and FINRA notice |
| Stop limit order | Becomes a limit order when the stock reaches the stop price | FINRA notice |
| Day order (time condition) | Expires at the end of the trading day if not executed | FINRA investor page |
On priority, the investor page states only that market orders typically receive the highest priority, followed by limit orders.
What FINRA guidance says about stop orders in volatile markets
FINRA issued guidance on the use of stop orders during volatile market conditions, published as the FINRA regulatory notice on stop orders. Besides Rule 5350, the notice summarizes other rules and a committee report:
- Under Rule 6121.02, FINRA generally halts all over-the-counter trading in all NMS stocks when a circuit breaker is triggered on the primary listing market.
- Rule 11892 generally provides uniform treatment across self-regulatory organizations for clearly erroneous reviews of NMS stock executions, including multi-stock events involving 20 or more securities.
- On April 19, 2016, the EMSAC Customer Issues Subcommittee issued a status report recommending that the SEC and FINRA consider additional guidance on stop order practices.
Our reading, not a statement from the sources: these items describe market-wide halts, reviews of clearly erroneous executions and a recommendation about stop order practices. The claims we rely on do not state how any of these rules applies to a particular stop order, and we draw no link between them beyond the fact that they are covered in the same notice.
Where the evidence on order types stops
This explainer relies on two FINRA documents: the investor page on order types and the notice on stop orders. Several questions remain unresolved by the claims used here:
- Execution outcomes. No figures on execution prices, fill rates or price differences for any order type are part of the supported material, and none are offered here.
- Time conditions. The only time condition covered is the day order. Other conditions are not described.
- Trading outside normal hours. The market order statement refers to normal trading hours, 9:30 a.m. to 4 p.m. Eastern Time. The cited claims say nothing about orders placed outside those hours.
- Individual brokers. The sources describe typical practice and FINRA rules. They do not describe how a specific broker handles defaults, priority or stop triggers.
- Later guidance. The April 19, 2016 report recommended that the SEC and FINRA consider additional guidance. Whether further guidance followed is not covered by the claims used here.
- Other markets and assets. The rules cited refer to NMS stocks and over-the-counter trading. Other asset types and other jurisdictions are outside the cited material.
Readers who need any of these points can consult the FINRA documents directly or ask their own broker for its written order-handling terms.
Limits of this article
This article is educational information about order types as described in the cited FINRA material.
It is not investment, tax or legal advice and does not recommend any order type, broker, product or asset.
It does not cover a specific broker's rules, execution results, trading outside normal hours, or markets and assets beyond the cited material.