What are market orders & limit orders?

Market orders and limit orders are the two primary order types investors can use to buy or sell a stock. A market order directs the broker to buy or sell a stock at the prevailing market price, while a limit order tells the broker to purchase or sell a stock at a specified price.

How does a limit order work?

If it’s reached, it automatically converts the limit order into a market order. Once the stock hits the specified stop-loss price, the order to sell (or buy) is executed at the next available market price. Because it turns into a market order, there's no guarantee the sale price will match the stop price if the market is particularly volatile.

Why should you set a limit order beyond the market price?

By setting a limit order beyond the market price, you create automated instructions for an order to execute whenever a target price occurs in the future. Order may not go through. Because limit orders are bound by prices, you don’t know for certain that your trade will ever be executed. A given security may never cross the threshold you indicate.