Both stop and limit orders are types of pending (deferred) orders, which means they’re set to execute in the future—when the market reaches a price you specify.
Here’s the key difference:
Limit Orders
A limit order opens a trade at a better price than the current market price:
Buy Limit: Opens when the price drops below the current level
Sell Limit: Opens when the price rises above the current level
Stop Orders
A stop order opens a trade in the direction of the trend, once the price moves beyond a certain point:
Buy Stop: Opens when the price rises above the current level
Sell Stop: Opens when the price drops below the current level
Summary Table:
Order Type | Entry Condition | Trade Direction |
Buy Limit | Price goes below current | Anticipating a rise |
Sell Limit | Price goes above current | Anticipating a drop |
Buy Stop | Price goes above current | Confirming upward trend |
Sell Stop | Price goes below current | Confirming downward trend |
These tools help you automate your strategy and only enter trades when market conditions meet your setup.