What Is a Market Order?
A market order is an instruction given by an investor to a broker to buy or sell stock shares, bonds, or other assets. It’s meant to be executed as quickly as possible at the current asking price.
In case of small-cap coins or listings where there's not much liquidity, market orders can get filled fast which can affect the price.
Understanding Market Orders
If you use an online broker, clicking on the "buy" or "sell" button generally calls up an order form that the user is required to fill in. It needs to know the stock symbol, whether you're buying or selling, and how many shares. It also asks for a price type.
The default price type is generally "market." That makes it a market order. The investor is not setting a price but is indicating a willingness to pay the current market price.
There are other options, including "market on close," which indicates that you want the transaction at the last possible moment in the session, and "limit," which allows you to buy only at or below a set price or sell only at or above a set price.
The market on close option is for people who think they'll get the best price of the day at the end of the day. The limit order allows you to walk away from your laptop confident that an opportunity won't be missed.
Why Use a Market Order
A market order is the most common and straightforward transaction in the markets. It is meant to be executed as quickly as possible at the current asking price, and it is the choice of most stock buyers and sellers most of the time. That's why it's the default option.
The market order is usually the lowest-priced option as well. Some brokers charge more for transactions that involve limit orders.
The market order is a safe option for any large-cap stock, because they are highly liquid. That is, there's a huge number of their shares changing hands at any given moment during the trading day. The transaction goes through immediately. Unless the market is wildly unsettled at that moment, the price displayed when you click on "buy" or "sell" will be nearly identical to the price you get.
Market Order vs. Limit Order
Market orders are the most basic buy and sell trades. Limit orders give greater control to the investor.
A limit order 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 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.