Order types: market, limit, stop

Two readers both decide EUR/USD is worth buying. The first writes down 1.0830 before opening the platform, then places a limit order at that price. The second opens the platform, sees 1.0850, and sends a market order. Both end up with a position. The first knows the entry price in advance. The second finds out after the fill.

The difference is not luck. A market order takes whatever price is available when the order reaches the broker. A limit order sits in the book and waits. If EUR/USD never falls to 1.0830, the limit does not fill at all. That is the trade-off: the first reader may miss the trade, but cannot be filled at a worse price than 1.0830.

A stop order works in the opposite direction. You set it at a price worse than the current one. It stays inactive until the market touches that price, then becomes a market order. So a stop order at 1.0870 on a buy only triggers once EUR/USD rises to 1.0870. The fill can be a few pips away, as the page already notes.

In short, the order type is a statement about what you know. If you know the price you want, use a limit. If you only know the condition under which you want to act, use a stop. If you know neither, a market order is the only one left, and it is the one that gives you the least control.

The page gives one pip on a standard lot as KSh 1,000. That figure is a starting point, not a fixed rule. The exact shilling value depends on the exchange rate the broker uses to convert from the pip currency, which is usually the quote currency of the pair. For EUR/USD, the pip is in US dollars, so the broker converts USD to KES at a rate that varies between brokers and over time. Always check the contract specifications on your own platform.

Suppose you plan a limit buy at 1.0830 and the market is at 1.0850. The gap is 20 pips. On 0.10 lots, each pip is KSh 100, so the gap is KSh 2,000. That number is the difference between the price you wanted and the price you would have paid with an immediate market order. It is not a profit or a loss yet. It is the cost of not planning.

Now suppose you use a stop buy at 1.0870 because you only want to act after price moves against your view. If the fill is 1.0875, the slippage is 5 pips. On 0.10 lots that is KSh 500. The trigger price and the fill price are two different numbers. The page mentions rounding and spread, but the practical point is simpler: a stop order cannot promise the price you set. It can only promise to send an order once that price is reached.

These calculations use the pip value you already worked out. They do not include spread or commission, which the broker may add on top. They also do not include any swap or financing charge if you hold the position overnight. The purpose is to compare order types in shillings, not to predict an outcome.

You have three prices in front of you: the current market at 1.0850, a better buy price at 1.0830, and a worse buy price at 1.0870. Each one answers a different question. The market order answers: what if I want to be in now. The limit order answers: what if I am willing to wait for a better price. The stop order answers: what if I only want to act after the price moves a certain way.

The mistake the page describes is using a market order when you already know your price. That turns a plan into an impulse. A second mistake is using a limit order when you actually want a stop. If you place a limit buy at 1.0870 while the market is 1.0850, it will fill immediately at the current price, because a limit buy fills at that price or better. It does not wait for the price to rise. That is the opposite of what a stop does.

A third mistake is setting a stop too close to the current price. A stop at 1.0852 when the market is 1.0850 may trigger on a small fluctuation, then fill at 1.0855 or worse. The distance between the trigger and the current price is your buffer. There is no universal correct distance. It depends on how much movement you expect and how much slippage you can tolerate.

The CMA regulates brokers in Kenya, but it does not set order types or pip values. Those come from the broker and the platform. M-Pesa and bank transfer are common ways to move money in and out, but they do not change how an order behaves once it is placed. The order type is a tool. The decision about which one to use belongs to you, and it should be made before you click send.