A limit order and a stop order are both instructions to buy or sell a security, but they trigger and execute differently.
Limit order A limit order sets a specific price (or better) at which you're willing to buy or sell. A buy limit order will only execute at the limit price or lower; a sell limit order will only execute at the limit price or higher. This gives you control over the price you pay or receive, but there's no guarantee the order will be filled if the market never reaches your specified price. Limit orders are typically used to enter or exit a position at a favorable price, or to buy on a dip or sell on a rally.
Stop order (stop-loss order) A stop order becomes active only after the market reaches a specified "stop price." Once triggered, it converts into a market order and executes at the next available price, which may differ from the stop price, especially in fast-moving or volatile markets. Stop orders are commonly used to limit losses on an existing position (a sell stop below the current price) or to protect gains, and sometimes to enter a position once a breakout occurs (a buy stop above the current price).
Key differences
- Trigger vs. price control: A limit order guarantees price but not execution; a stop order guarantees execution (once triggered) but not price.
- Purpose: Limit orders are generally used to get a specific entry/exit price; stop orders are generally used to manage risk or catch momentum after a price threshold is crossed.
- Execution mechanics: A limit order sits and waits to be filled at your price or better. A stop order sits dormant until the stop price is hit, then becomes a market order.
Some brokers also offer a hybrid stop-limit order, which triggers at the stop price like a stop order but then submits a limit order (rather than a market order) at a specified limit price, combining features of both — though this adds the risk that the order may not fill at all if the price moves past the limit level quickly.