I am trying to understand what is the difference between a stop order, and a limit order for stock purchase. If I am aiming to purchase a stock when it hits $x price, do I use stop, or limit order?

I guess you know what is a Market Order, i.e entering at the current market price.

When you are long a stock (betting the price to go up), you use a Buy Stop Order to enter at a price HIGHER than the current market price. This strategy is for people doing an upside breakout strategy. They camp at a level to enter when price bursts upward. On the other hand, you use a Buy Limit Order to enter at a price LOWER than the current market price. This strategy is for people waiting for a price pullback to a lower level where they think it will resume its upward move.

When you are short a stock (betting the price to go down), you use a Sell Stop Order to enter at a price LOWER than the current market price. This strategy is for people doing an downside breakout strategy. They camp at a level to enter when price bursts downward. On the other hand, you use a Sell Limit Order to enter at a price HIGHER than the current market price. This strategy is for people waiting for a price recovery to a higher level where they think it will resume its downward move.

Hope it helps.

Hi Raymond,

You will be looking to use limit order and choose a specific price, which instruct your broker to buy the selected stock when the price hits the price which you set.