| By default, the limit order will expire at the end of the trading day if it doesn't fill. However, you can choose to change the setting to "good til canceled" (GTC) and the order will be good for many days. Depending on the broker, the GTC order could be good for up to 90 days. This comes in handy if you want to buy a stock if it pulled back to a certain level. The risk of the limit order is that it's possible it does not fill and you end up having to do the trade at a worse price. So if you really want to buy or sell a stock, it makes sense to set a limit a little higher (if you're buying) or lower (if you are selling) than the prevailing quote. This increases the chances of the order filling but also prevents you from getting hurt from a sudden unfavorable price move. What Is a Stop Order? A stop order is an order telling the broker to execute a trade once a stock reaches a certain price. If you own XYZ but you worry that the stock will fall fast if something goes wrong, you can set a sell stop order at, say, $28. If the stock does fall past $28, your stop order becomes a market order. This type of order also works for short sellers who want to cover once the stock breaks through a certain point. In both scenarios, the goal is to cut losses. Hence, the order is also called a stop-loss order. You may have already noticed a potential problem with the stop order: it becomes a market order. This means that you are exposed to the risk of a market order discussed above. Bad Memories of the Flash Crash During the Flash Crash of 2010, U.S. stocks lost about $1 trillion in market value in a blink of an eye and recovered within 40 minutes. Stop-loss orders were triggered en masse and investors lost their shares at abnormally low prices. Thankfully, many of the trades triggered by the Flash Crash were cancelled, but the incident highlighted the danger of stop orders. Brokers offer another type of order that fixes this weakness. You can choose a stop-limit order, which combines the features of the stop and the limit orders. After the stop price is breached, instead of a market order, the stop order becomes a limit order. You set both the stop and limit prices when you enter your order. Of course, the risk of the order not filling also applies here. As you can see, none of the trade types are perfect. However, with experience you can really use them to your advantage. Income insurance… Are you looking for a steady source of income? A source that's immune to the pandemic and economic ups and downs? Turn to my colleague Amber Hestla. Amber is chief investment strategist of the premium trading services Income Trader, Maximum Income, Profit Amplifier, and Precision Pot Trader. Amber can show you how any U.S. citizen can pocket instant cash from a government "income insurance" program. It's all thanks to an obscure loophole she has unearthed through tenacious research. Intrigued? Click here for details. | 
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