The Market Order
A market order is the simplest of orders and is used when the greatest priority of the customer is for immediate execution. A market order instructs your broker to buy or sell futures contracts immediately at the market price, the best possible price for immediate execution. Market orders are the easiest way to enter or exit a market since the customer receives immediate execution - and must pay or receive whatever price is necessary for immediate execution.
The Limit Order
A limit order is like a market order with one exception, price takes the highest priority. For limit buy orders, the customer includes, along with the type and quantity of futures contracts to purchase, a maximum price to pay for the contracts. A customer will use a limit buy order if they desire to buy the futures contract, but want to pay no more than a specified price - the limit price. This price is always below the prevailing market price, since the customer would have otherwise entered a market order.
[Related -The Long-Suffering Average Investor]
The Stop Order
A stop order, like a limit order, is only executed once a specific price is reached, but the motivation for the transaction is different. Whereas the limit order is typically used to enter into a futures position at a specific price, a stop order is usually used to exit or close a futures position at a specific price. Stop orders are most often used to close a position that is losing money, and are hence regarded as a useful risk management tool. A stop order to buy has a price that is above the market price and would be used by a customer having a short futures position. If prices rise so that loss accrues on the customer's short position, the stop loss provides a limit to the loss - as soon as prices rise to the stop price, the order is executed as a market order. Similarly, a stop order to sell has a price that is below the market price and would be used by a customer having a long futures position. If prices fall so that loss accrues on the customer's long position, the stop loss provides a limit to the loss - as soon as prices fall to the stop price, the order is executed, thereby closing out the initial long position.