Why Limit Orders May Cost More Than Market Orders

Two common ways to trade stock are market orders and limit orders. A market order is the simplest type of stock trade. It involves buying or selling shares of stock immediately at the best available current price. An investor may contact their broker and specify the shares that they wish to buy or sell, and the broker will execute the order. Many of the major brokerages allow market orders to be placed online as well. 

Comparing Trading Fees for Market and Limit Orders

While sudden swings in price and availability, as well as delays in processing the order, meaning there is always a chance that a market order does not go through, it is considered to be the simplest and guaranteed way to buy or sell stock. As a result, brokerage fees for market orders are often lower than for other types of orders, such as limit orders.

With a limit order, the investor is allowed to specify the maximum price at which they will purchase stock, or, conversely, the minimum price at which they will sell it. This type of technical trading gives the investor more control, as they are not entirely subject to the market's whims; trades are only executed when they can be made at prices pre-approved by the investor.

Limit orders may cost more and command higher brokerage fees than market orders for two reasons. They are not guaranteed; if the market price never goes as high or low as the investor specified, the order is not executed. Because they are more technical and less straightforward trades, they create more work for the broker, who, as a result, charges a higher fee.

Most brokerages offer free or low-cost online trades on stocks across the various order types for customers who perform trades without the assistance of a broker or trader.

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