What Is A Market Order?

What is a market order? A market order is a buy or sell order in which the broker executes the order at the best price currently available. These are often the lowest-commission trades because they involve...

A market order is a buy or sell order in which the broker executes the order at the best price currently available. These are often the lowest-commission trades because they involve very little work by the broker.


Because market orders are simple and straightforward, they are the most frequently used order. The order will be executed as soon as possible and saves the investor from having to "chase" the market.




The advantage of a market order is that you're almost always guaranteed that your order will be executed (assuming there are willing buyers and sellers). Depending on the brokerage firm's commission structure, a market order may be less expensive than a limit order (a limit order is used to avoid buying or selling a stock at a price higher or lower than you wanted. In other words, a limit order is an order to buy or sell a stock at a specific price).

The disadvantage of a market order is that you're not guaranteed a price. The price you ultimately pay for the stock may be higher or lower than the price you saw in a real-time quote or from your broker. This may be especially true in fast-moving markets where stocks prices are volatile. When you place an order "at the market," especially if it's a large purchase, there's a good chance you'll receive different prices for different parts of the order.

Be careful when using a market order for stocks with a low daily volume; this would include smaller companies, start-ups, and obscure stocks. In such markets that ask price can be considerably higher than the current market price, resulting in a large spread. You could end up paying much more than you originally anticipated. It's much better to use market orders for stocks with a large daily volume such as Wal-mart and Microsoft. High volume stocks don't find themselves in the position of being artificially elevated or depressed nearly as often as low volume stocks.

A market order for a large number of shares may be split by the broker across multiple investors on the other side of the transaction, resulting in different prices for some of the shares.

A market order is typically relayed to a firm's desk on the trading floor by telephone, teletype or electronically. The market order is than filled at the best available price immediately upon receipt by the broker.

Synonyms for market orders include "at the market" or "unrestricted orders."

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