At-the-Market: Definition, How It Works, Example

What Is At-the-Market?

An at-the-market order buys or sells a stock (or a futures contract) at the prevailing market bid or ask price at the time it gets processed. An at-the-market order is a type of market order, an instruction by an investor to a broker to buy or sell an asset at the best available price in the current financial market.

An at-the-market instruction usually provides a fill within moments of being received. It can be placed anytime during market hours. If received after regular market trading hours, this order type gets executed as soon as the market reopens.

Key Takeaways

  • At-the-market is an instruction given to a broker to place a market order to buy or sell securities at the prevailing market bid or ask price at the time it is received.
  • Market orders are typically used by investors who seek immediate execution of their desired transaction.
  • At-the-market orders are also useful for investors who do not have time to watch the market and "time" their trades.
  • On the downside, investors who place trades at-the-market run the risk of paying higher prices than necessary, or receiving lower gains.
  • Limit orders provide more control over prices, but they may not guarantee the execution of the order if the set limit price isn't met.

Understanding At-the-Market

At-the-market instructs a broker to execute an order to buy or sell promptly. Hopefully, it'll be at the best price that is currently available, but the emphasis is on execution.

Market orders are typically used by investors who seek immediate execution of their desired transaction. When an investor places an order at-the-market, they are willing to forgo a price of their choosing for the speediness of buying (or selling) the desired security.

During extreme bull markets, buy limit orders (orders that only trade at the limit price or lower) often don't get executed because investors are prepared to pay a premium for stocks they want to purchase.

Likewise, sell limit orders (orders that only trade at the limit price or higher) often remain unfilled during bear markets when prices gap lower. Both scenarios can cause investors considerable angst when trying to deal.

Advantages and Disadvantages of At-the-Market

Advantages of At-the-Market

At-the-market orders are the default for many investors. They ensure that the order will be filled promptly and speedily. They are ideal for investors who care more about acting on an investment decision once it's been made, and whose realization of gains or ability to buy don't hinge on a few dollars or cents.

Investors can use an at-the-market order to complete a large trade that needs to be filled by a specific date. For instance, a fund manager might need to have acquired shares of a certain company before its stock goes ex-dividend to receive the distribution. Any portion of the order that was on a limit and not executed can be completed by using an at-the-market order, albeit at a higher price.

At-the-market orders are also useful for investors who do not have time to watch the market and wait for a limit order to execute. If the trade involves a high-volume stock like a blue-chip or a popular ETF, there's little risk of the price changing dramatically anyway. With such liquid securities, the market order is likely to go through nearly instantaneously at a price very close to the latest quote that the investor can see.

The less liquid the investment (think small-cap stocks in obscure or troubled companies), the less reliable the market order.

Disadvantages of At-the-Market

Any time a trader seeks to execute a market order, the trader is willing to buy at the asking price or sell at the bid price. Thus, the person conducting a market order is immediately giving up the bid-ask spread, the difference between the highest price that a buyer is willing to pay for an asset and the lowest price that a seller is willing to accept.

For this reason, it’s a good idea to look closely at the bid-ask spread before placing a market order—especially for thinly traded securities. Failure to do so can be costly. This is doubly important for people who trade frequently or use anyone utilizing an automated trading system. Investors who execute a trade using an at-the-market order run the risk of paying higher prices than necessary, particularly when trading small-cap stocks. These stocks are often illiquid and have wide spreads that are several basis points away from the last sale price.

For example, a stock that only trades several thousand shares a day may have a bid price of $2, an ask price of $3, and a last sale price of $2.15. When trading stocks with a wide bid/ask spread, investors should use the last sale price as a reference point to determine if placing an at-the-market order is appropriate.

  • Order executed at once

  • No need to watch and "time" the market

  • Good for trades that need executing by a certain date

  • No control over executed price

  • Risk of not getting the best price

  • Can be slow and costly if asset is thinly traded, with wide price swings

Market Orders vs. Limit Orders

Market orders are the most basic buy and sell trades. Limit orders give greater control to the investor.

A limit order instead allows an investor to set a maximum acceptable purchase price amount or a minimum acceptable sales price while placing an order. The order will be processed only if the asset hits that price. Limit orders are preferable in a number of circumstances:

  • If the shares trade lightly or are highly volatile in price. The investor can time the sale for the next price upswing (or, in the case of selling, downswing).
  • If the investor has determined an acceptable price in advance. The limit order will be ready and waiting. (Note: If you use an online broker, don't check on the "good for day" option unless you want the order to vanish at the close of that trading session.)
  • If the investor wants to be really certain that the price won't slip in the split-second it takes to finalize the transaction. A stock quote indicates the last price that was agreed upon by a buyer and seller. The price may tick up or down with the next transaction.

Limit orders are commonly used by professional traders and day traders who may be making a profit by buying and selling huge quantities of shares very quickly in order to exploit tiny changes in their prices.

Example of At-the-Market

Say the bid-ask prices for shares of Excellent Industries are $18.50 and $20, respectively, with 100 shares available at the ask. If a client instructs their broker to buy 500 shares at-the-market, the first 100 will execute at $20. The following 400, however, will be filled at the best asking price for sellers of the next 400 shares. If the stock is very thinly traded, the next 400 shares might be executed at $22 or more.

The Bottom Line

An at-the-market order is an instruction to buy or sell a security at its prevailing price in the marketplace. The emphasis is on prompt execution, as opposed to a precise amount to buy or sell at—as in the case of a limit order.

At-the-market orders are the go-to for many investors, especially individual ones. They do involve giving up some control over the price you'll actually realize, since things can change between putting in an order and that order being executed. However, this risk is pretty small when dealing with large-cap stocks, high-volume ETFs, and other instruments that have a big market and a ready supply of buyers and sellers.

At-the-Market Offering FAQs

What Is an At-the-Market Offering?

An at-the-market offering (ATM) takes place after a company goes public, as a sort of follow-up. In an ATM, a company can offer secondary public shares on any given day, usually depending on the prevailing market price, to raise capital.

An at-the-market (ATM) offering gives the issuing company the ability to raise capital as needed. If the company is not satisfied with the available price of shares on a given day, it can refrain from offering them, saving its new shares for another day (and a better price).

ATM offerings are sometimes referred to as controlled equity distributions because of their ability to sell shares into the secondary trading market at the current prevailing price.

How Does an At-the-Market Offering Affect the Stock Price?

Shareholders often react negatively to secondary offerings because they dilute existing shares and many are introduced below market prices. However, unlike the typical 7% to 10% drop in stock price that follows the announcement of a traditional follow-on equity offering, the average stock price change following the announcement of an ATM is minimal—often, just 1% to 3%.

Where Can I Find At-the Market Offerings?

Issuing companies set up ATM programs to prepare prospectuses and issue shares—a streamlined version of a regular initial public offering. A sales agent—usually an investment bank—then circulates news of the ATM to investors and financial firms, announcing a launch date when shares will be available.

Why Do Companies Do At-the Market Offerings?

An ATM offering program may provide a company with a more attractive and less dilutive capital-raising option. The availability of an ATM program also allows a company to take advantage of a temporarily higher stock price, a good earnings report (typically, the best time to launch an offering is shortly after the filing of the issuer’s Form 10-K or 10-Q), or an upcoming milestone event to raise money.

ATMs also tend to be faster and cheaper than traditional IPOs or other follow-on equity offerings. There is no lock-up period, and the incremental sale of shares has a minimal impact on the prevailing stock price.

Article Sources
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  1. Brinson Patrick. "Frequently Asked Questions about ATMs." Accessed Aug. 10, 2021.
  2. LexisNexis. "Understanding At-the-Market Offerings." Accessed Aug. 10, 2021.
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