Stop and limit orders are together known as working, or pending orders.
Essentially, they’re instructions for a broker to execute a trade when a specific price is reached.
If you don’t have time to watch the markets 24/7, you can enter working orders.
They essentially tell your broker what you’d like to do in different market scenarios so that it can act quickly and without having to get in touch with you.
Working orders are one of several varieties of orders, including market orders that will execute at the best available price that day, or good-’til-canceled orders that remain open indefinitely.
Unlike most types of order, though, working orders are not differentiated by their expiry date.
Working orders can have different expiry dates, from same-day to good ‘til canceled, which will remain open until you cancel it.
There are two varieties of working order:
- Stop orders will execute at a level less favorable than the current market price
- Limit orders will execute at a level more favorable than the current market price
Both types of working order tell your broker you only want to make a trade if something happens to the asset price.
When that price is hit, your broker will make the trade and buy or sell an agreed-upon quantity.
It’s important to review working orders regularly to make sure they’re still matched to your market outlook and trading goals.