What Is a Bitcoin Exchange? How It Works, Fees, and Example
Key Takeaways · A Bitcoin exchange acts as the intermediary between a seller and a buyer or, to use market jargon, between a "maker" and a "taker." · A Bitcoin ...
market order
Bitcoin exchange platforms match buyers with sellers. Like a traditional stock exchange, traders can opt to buy and sell bitcoin by inputting either a <anchor>market order</anchor> or a limit order. When a market order is selected, the trader authorizes the exchange to trade the coins for the best available price in the online marketplace. A limit order directs the exchange to trade coins for a price below the current ask or above the current bid, depending on whether they are buying or selling.
Market Order: Definition, Example, Vs. Limit Order
- SearchSearch

Please fill out this field.

SearchSearch

Please fill out this field.

Investing

Simulator

Banking

Personal Finance

Economy

News

Reviews

Follow Us

Table of Contents

Expand

Table of Contents

# Market Order: Definition, Example, Vs. Limit Order

By

Rajeev Dhir is a writer with 10+ years of experience as a journalist with a background in broadcast, print, and digital newsrooms.

Updated October 13, 2021

Reviewed by

Reviewed byChip Stapleton

Chip Stapleton is a Series 7 and Series 66 license holder, CFA Level 1 exam holder, and currently holds a Life, Accident, and Health License in Indiana. He has 8 years experience in finance, from financial planning and wealth management to corporate finance and FP&A.

Part of the Series

Day Trading Introduction

Day Trading Basics

Day Trading Instruments

Trading Platforms, Tools, Brokers

Trading Order Types

Strategy & Analysis

Risk & Money Management

Day Trading Psychology

## What Is a Market Order?

A market order is an instruction by an investor to a broker to buy or sell stock shares, bonds, or other assets at the best available price in the current financial market.

It is the default choice for buying and selling for most investors most of the time. If the asset is a large-cap stock or a popular exchange-traded fund (ETF), there will be plenty of willing buyers and sellers out there. That means that a market order will be completed nearly instantaneously at a price very close to the latest posted price that the investor can see.

A limit order, which instructs the broker to buy or sell only at a certain price, is the main alternative to the market order for most individual investors.

- A market order is an instruction to buy or sell a security immediately at the current price.
- A limit order is an instruction to buy or sell only at a price specified by the investor.
- Market orders are best used for buying or selling large-cap stocks, futures, or ETFs.
- A limit order is preferable if buying or selling a thinly traded or highly volatile asset.
- The market order is the most common transaction type made in the stock markets. It is the default choice in most online broker transaction pages.

## 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.

If you think a stock will hit a level you find acceptable soon, try a limit order. If you're wrong, the transaction won't take place.

### 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.

### Downside of a Market Order

The market order is less reliable when trading less liquid investments, such as small-cap stocks in obscure or troubled companies. Because these stocks are thinly traded, the bid-ask spreads tend to be wide. As a result, market orders can get filled slowly and at disappointing prices.

## 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.

Transactions in big-cap stocks like Apple and Microsoft tend to be fulfilled nearly instantaneously and without issue. Smaller and more obscure stocks might not.

## Example of a Market Order

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 trader places a market order to buy 500 shares, 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.

This is why it’s a good idea to use limit orders for some transactions. Market orders are filled at a price dictated by the market. Limit orders give more control to the trader. as opposed to limit or stop orders, which provide traders with more control. A trade for a large number of shares can also be entered as a sweep-to-fill order that is broken into segments and executed at the best price.

## Special Considerations

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.

## Market Order FAQs

Here are the answers to some commonly asked questions about market orders.

### What does market order mean?

A market order directs a broker to buy or sell shares of an asset at the prevailing market price. It is the most common way to buy or sell stocks for most investors most of the time.

### How does a market order work?

A market order by definition is an instruction for immediate purchase or sale at the current price. It's a bit like buying a product without negotiating. However, in the financial markets, a fair price at any given moment is determined by the vast volume of sell and buy orders being resolved. You'll get the price that is fair at that moment.

Traders have the option of making it a limit order rather than a market order.

### What is the difference between a market order and a limit order?

A limit order sets a specific maximum price at which the investor is willing to buy or a specific minimum price at which the investor will sell. The limit order will sit there until it is fulfilled or it expires.

In an online buy or sell order, the "good for day" option will cancel the order at the market close if the price is not met.

### What is a batch order vs. a market order?

A batch order is a behind-the-scenes transaction conducted by brokerages. At the start of the trading day, they combine various orders for the same stocks and push them through as if they were a single transaction. Batch trading is permitted only at the opening of the market and only with orders placed between trading sessions.

Each batch order will consist of a number of market orders, sent through sometime between that day's session and the previous close.

Article Sources

Investopedia requires writers to use primary sources to support their work. These include white papers, government data, original reporting, and interviews with industry experts. We also reference original research from other reputable publishers where appropriate. You can learn more about the standards we follow in producing accurate, unbiased content in our
editorial policy.

1. Corporate Finance Institute. " What is a Market Order?" Accessed May 5, 2021.

2. U.S. Securities and Exchange Commission. " Types of Orders." Accessed May 5, 2021.

Take the Next Step to Invest

Advertiser Disclosure

×

The offers that appear in this table are from partnerships from which Investopedia receives compensation. This compensation may impact how and where listings appear. Investopedia does not include all offers available in the marketplace.

Part of the Series

Day Trading Introduction

Day Trading Basics

Day Trading Instruments

Trading Platforms, Tools, Brokers

Trading Order Types

Strategy & Analysis

Risk & Money Management

Day Trading Psychology

Related Terms

A hybrid market is an exchange through which traders can use automated trading systems and traditional floor brokers in order to execute transactions.

A minimum guaranteed fill (MGF) order requires a market maker to complete transactions for small market orders at the current posted bid or ask price.

Payment for order flow is the practice of market makers paying a commission to brokers for sending trades to them.

Clearing is when an organization acts as an intermediary to reconcile orders between transacting parties. A clearing bank approves checks for payments.

The spot market is where financial instruments, such as commodities, currencies, and securities, are traded for immediate delivery.

A ticker tape is a computerized device that relays financial information to investors worldwide.

Related Articles

Partner Links

By clicking “Accept All Cookies”, you agree to the storing of cookies on your device to enhance site navigation, analyze site usage, and assist in our marketing efforts.

Cookies SettingsAccept All Cookies