What is the difference between a limit order and a stop order?

@heather 

A limit order and a stop order are both types of orders used in trading securities, but they have different purposes and functions.

1. Limit Order: A limit order is an instruction given to a broker to buy or sell a security at a specific price or better. It specifies the maximum price a buyer is willing to pay or the minimum price a seller is willing to accept. If the specified price is not reached, the trade will not be executed. Limit orders are commonly used to enter or exit a position at a specific price, allowing traders to have more control over the price they buy or sell a security.
2. Stop Order: A stop order, also known as a stop-loss order, is an instruction given to a broker to buy or sell a security once the price reaches a specific threshold, known as the stop price. The purpose of a stop order is to limit potential losses or protect profits by automatically triggering a market order when the specified stop price is hit. For example, a sell stop order would be triggered if the price drops to the stop price, ensuring the security is sold to minimize further losses. Stop orders are commonly used for risk management and to set exit points.

In summary, a limit order is used to set the maximum buying or minimum selling price, while a stop order is used to trigger a trade once a specific price threshold is reached to limit losses or protect profits.