Market Order
A market order is an instruction to buy or sell a security immediately at the best available price in the current market. It is the default order type on most broker platforms and is designed for quick execution rather than price control.
How market orders work
- When you submit a market order, you accept the prevailing ask price if buying or the prevailing bid price if selling.
- Execution is usually instantaneous for highly liquid assets (large-cap stocks, popular ETFs, futures) because many buyers and sellers are available.
- For less liquid or volatile securities, fills may occur across multiple price levels until the full order quantity is matched.
When to use a market order
Use market orders when:
* Speed of execution matters more than the exact execution price.
* Trading highly liquid instruments where the displayed price and fill price are likely to be nearly identical.
* You want a straightforward, low-friction trade and are comfortable accepting the current market price.
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Downsides and risks
- Price uncertainty: You have no control over the execution price, which can diverge from the last quoted price—especially in fast-moving markets.
- Slippage: Large orders or thinly traded stocks can be filled at progressively worse prices, potentially costing more than anticipated.
- Bid-ask spread: By using a market order you effectively “pay” the spread—buying at the ask or selling at the bid.
Market order vs. limit order
- Market order: Executes immediately at the best available price. Prioritizes speed over price.
- Limit order: Executes only at a specified price (or better). Prioritizes price control over immediacy.
Limit orders are preferable for thinly traded or highly volatile assets, when you have a target price in mind, or when you want to avoid unexpected slippage.
Practical examples
Example of slippage:
* Ask = $20 with 100 shares available. You place a market order to buy 500 shares.
* First 100 shares fill at $20; the remaining 400 will fill at the next available ask prices, which could be $22 or higher if liquidity is thin.
Order variants to be aware of:
* Market on Close: Executes at the market price at the close of trading.
* Sweep-to-fill: Breaks a large market order into smaller parts to fill across available prices/liquidity pools.
* Batch orders: Brokerages may aggregate orders at market open into a batch execution; these are handled behind the scenes and typically occur at market open.
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Special considerations
- Always check the bid-ask spread before using a market order—wide spreads can make market orders costly.
- For automated trading or frequent traders, slippage and spread costs accumulate and should be monitored.
- Online broker options like “Good for Day” affect how long limit orders remain open; market orders generally execute immediately and do not persist.
Key takeaways
- Market orders are best when execution speed is the priority and the security is liquid.
- Use limit orders when you need price certainty or are trading thinly traded/volatile assets.
- Be mindful of bid-ask spreads, potential slippage, and order size relative to market liquidity.