What Is At-The-Market?

An at-the-market order buys or sells a stock or futures contract at the prevailing market bid or ask (offer) price at the time it gets processed. It is instructions to execute a market order.

An at-the-market instruction usually provides a fill within moments of being received and 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.
  • Investors who place trades at-the-market run the risk of paying higher prices than necessary. Limit orders prevent this, but may not guarantee execution of the order if the limit price isn't met.

Understanding At-The-Market

At-the-market instructs a broker to execute an order to buy or sell at the best available prices currently available.

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 an execution at a price of their choosing for the prevailing market rate and 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 as 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.

Risks 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.

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.

Benefits of At-The-Market Instructions

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 complete a trade before a 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.

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.