Loading the player...

What is a 'Market Order'

A market order is a request to buy or sell a security at the best-available price in the current market. It is widely considered the fastest and most reliable way to enter or exit a trade, and provides the most likely method of getting in or out of a trade quickly.

For many large-cap, liquid stocks, for instance, market orders fill nearly instantaneously.

The trade-off, however, is that market orders fill at a price dictated by the market, as opposed to limit or stop orders, which provide a trader more control. Using market orders can sometimes lead to unintended, and in some cases, significant costs.

BREAKING DOWN 'Market Order'

A market order is considered the most basic of all orders. For instance, a number of brokerages include trading applications with a buy/sell button. Hitting this button generally executes a market order.

In most cases, market orders incur the lowest commissions of any order type, as they require very little work on the part of either an online or traditional broker.

Market orders generally work best with large-cap stocks, futures or ETFs that trade in very high volumes. For example, market orders for the S&P e-mini or a stock such as Microsoft tend to fill very rapidly without issue.

It’s a different story for stocks with low floats and/or very little average daily volume, however. Because these stocks are thinly traded, the bid-ask spreads tend to be wide. As a result, market orders sometimes get filled slowly for these securities, and often at unexpected prices that lead to meaningful trading costs.

Market Order Slippage

Note that any time a trader seeks to execute a market order, this means the trader is willing to buy at the asking price, or sell at the bid price. Thus, the person executing market order is immediately giving up the bid-ask spread.

For this reason, it’s sometimes a good idea to look closely at the bid-ask spread before placing a market order, especially for thinly traded securities. Failing to do so sometimes results in very high costs. This is doubly important for individuals who trade frequently, or anyone utilizing an automated trading system.

For example, say the bid-ask prices for shares of Excellent Industries are $18.50 and $20, respectively, with 100 shares available at the bid. If a trader places a market order to buy 500 shares, the first 100 wille execute at $20. The next 400, however, fill 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. This is precisely why it’s a good idea to use limit orders for these types of securities.

  1. Held Order

    A held order is a market order that requires prompt execution ...
  2. Open Order

    An open order is an order to buy or sell a security that remains ...
  3. Time In Force

    Time in force is an instruction in trading that defines how long ...
  4. Continuous Trading

    Continuous trading is a method for transacting security orders. ...
  5. Box-Top Order

    A box-top order is an order to buy or sell the best market price. ...
  6. Conditional Order

    A conditional order is an order that includes one or more specified ...
Related Articles
  1. Investing

    Understanding Market Orders And Limit Orders

    A market order executes a transaction as quickly as possible at the present price. Immediacy is the main concern. A limit order is executed at or below a purchase or sale price. Price is the ...
  2. Trading

    Introduction To Order Types

    A trade order is an instruction that is sent to a broker to enter or exit a position. Learn about the various types available to investors.
  3. Investing

    Narrow Your Range With Stop-Limit Orders

    With stop-limit orders, buyers protect themselves from prices too high for their tastes.
  4. Investing

    How To Calculate The Bid-Ask Spread

    It's very important for every investor to learn how to calculate the bid-ask spread and factor this figure when making investment decisions.
  5. Investing

    Understanding Buy Stop Orders

    A buy stop order is an order to buy a stock at a specific price above its current market price.
  6. Personal Finance

    How brokers can avoid a market-maker's tricks

    Ensure that you and your clients are getting the best deal by avoiding these three pitfalls.
  1. The difference between a market order and limit order

    Market orders execute a trade to buy or sell immediately at the best available price. A limit order only trades when the ... Read Answer >>
  2. How long does it take a broker to confirm a trade after it is placed?

    Learn about placing trades with a broker and the amount of time required to received confirmation of different types of orders. Read Answer >>
  3. What is the difference between a buy limit and a stop order?

    Learn the difference between buy limit orders and stop orders, including stop loss orders, and understand the risks of the ... Read Answer >>
  4. How can I prevent my limit order from not getting filled if the stock's price gaps ...

    You can minimize the chances of this situation happening if you understand two types of orders: the buy-stop order and the ... Read Answer >>
Trading Center