Securities
Market Order
A market order is an instruction to buy or sell a security immediately at the best available current price, guaranteeing execution but not the price.
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Exam Tip
Market order = execution guaranteed, price NOT guaranteed. Opposite of limit order.
What is a Market Order?
A market order is the simplest type of trade order. It instructs your broker to buy or sell a security immediately at the current best available price.
How Market Orders Work
| Action | Result |
|---|---|
| Buy Market Order | Buys at lowest ask price available |
| Sell Market Order | Sells at highest bid price available |
Market Order Characteristics
| Feature | Description |
|---|---|
| Execution | Guaranteed (during market hours) |
| Price | NOT guaranteed |
| Speed | Immediate |
| Priority | Executed before limit orders |
When to Use Market Orders
- Highly liquid securities (large-cap stocks)
- When execution is more important than price
- Fast-moving markets where you need to act quickly
- Small orders where price difference is minimal
Risks of Market Orders
| Risk | Description |
|---|---|
| Slippage | Price moves between order and execution |
| Wide spreads | In illiquid stocks, may pay more/receive less |
| Volatile markets | Prices can move significantly |
| After-hours gaps | Opening price may differ from close |
Market Order vs. Limit Order
| Factor | Market Order | Limit Order |
|---|---|---|
| Execution | Guaranteed | Not guaranteed |
| Price | Not guaranteed | Guaranteed |
| Best for | Liquid stocks, urgent trades | Illiquid stocks, specific targets |
Best Practices
- Use for liquid, actively-traded securities
- Avoid in volatile or thinly-traded markets
- Consider limit orders for large positions
- Be cautious with after-hours orders