What is a Market Order? Overview, Definition and Strategy

A market order is an immediate request to complete a trade at the current available market price. Market orders are the fastest and most reliable way to complete a trade; however, in exchange for expediency, the trader will give up some pricing power in the form of slippage.

Market orders are the best tool when you have to execute a trade as quickly as possible. Unlike limit orders, which require the trader to set a desired target price, market orders allow the trader to immediately transact at the next best available price. This ensures that the trade is completed quickly, whereas a limit order may remain unfilled if the designated price is never reached.

This guide covers market orders and is part of a larger collection of guides that cover common order and execution types. Check out our table below to see the key features of market orders and how they stack up against other order types.

Order TypeMarket OrderLimit OrderStop OrderStop-Limit Order
Price CertaintyUncertainCertainUncertainCertain
Execution CertaintyCertainUncertainCertainUncertain

What does it mean to place a market order?

When placing a market order, you are essentially asking the broker to execute your trade at the next available best price. If you’re familiar with stock tickers scrolling across the screen, you should understand that these prices are not static and only represent a snapshot of where the stock price stands at that moment in time.

In reality, prices are constantly in motion, being constantly bid up or bid down by the vast number of participants that make up the stock market, and the current “market price” only represents what the aggregate average of those prices are trending. The going price of any given stock is constantly in motion and this concept is the same whether you’re trading stocks, bonds or options.

For that reason, when you place a market order, you should expect to receive a final trade price that differs slightly from where it was when you placed the order. Regardless of whether you’re buying or selling a security, you’re taking the next best available price the trading system can find from a list of available counteroffers on the market.

What is a market order to buy?

A market order to buy is placed from the perspective of someone who wishes to acquire an investment. Essentially the buyer of the security is saying that they will purchase the investment at the next available ask price. 

Example

Market order to buy

Shares of General Electric (GE) trade at $7.30 per share today, you’re an investor who likes the future prospects of this company and wishes to acquire some stock at the current market price. You place a market order to purchase 100 shares of GE. Luckily for you, the market is relatively stable due to the high volume of trades associated with a well known stock like GE.

The order completes almost instantaneously, and the automated brokerage sends you a confirmation stating that 100 shares of GE were acquired at an average share price of $7.32. You now own 100 shares of GE at a cost basis of $7.32 per share, or $732 total. 

In this scenario, your trade completed at a price that was 2 cents per share more expensive than the price that you originally saw it trade, for a total loss due to market movements of $2.00. It’s possible that you would’ve been closer to your target price by placing a limit order at $7.30 instead.

How can I be paying more than what the stock was trading for?

While the logical assumption is for your trade to complete at the last price quoted, in reality, this is rarely the case. If a market order to buy is successfully completed, the buyer will acquire the requested number of shares at an average cost per share that encompasses all of the shares purchased. The price you pay may differ from the price that you saw when you executed the trade due to a variety of factors that can be due to market volatility, liquidity, trade commissions, and slippage.

In some instances, you may even complete your purchase at a better price than when you submitted the trade. This is more likely to occur when the market is trending downwards and new lower bids are entered in real time. However, regardless of whether your trade came in better or worse than anticipated, your trade price will almost always be slightly off when you place a market order.

What is a market order to sell?

A market order to sell is placed from the perspective of someone who already owns an investment and wishes to sell it quickly. Essentially, the seller of the security is saying that they will sell their investment at the next available offer price.

Example

Market order to sell

You own shares of General Electric (GE) that trade at $7.30 per share today. At those levels, you believe that the company may be overvalued and so you wish to sell your shares at the current market price. You decide to place a market order to sell 100 shares of GE. Luckily for you, the market is relatively stable on this day.

The sell order completes almost instantaneously, and the automated brokerage sends you a confirmation stating that 100 shares of GE were sold at an average share price of $7.28. The sales proceeds of $728 are deposited to your account.

In this scenario, you got a price that was 2 cents worse, per share, than the last price you saw, for a total loss of $2.00. It’s possible that you would’ve been closer to your target price by placing a limit sell order at $7.30 instead.

Why are the profits from my stock sale less than what I sold them for?

While the logical assumption is for your trade to complete at the last price quoted, in reality, this is rarely the case. If a market order to sell is successfully completed, the seller will unload their shares at an average cost per share that encompasses each of the shares sold. This price may differ from the price indicated when you placed the trade due to a variety of factors that can include market volatility, liquidity, trading fees, and slippage.

In some cases, you may even complete your sale at a higher price than when you submitted the market order to sell. This is more likely to occur when the market is trending upwards and the number of purchase offers are exceeding the number of sell orders being entered in real time. However, regardless of whether your trade came in better or worse, your trade price will almost always be slightly off when you place a market order.

When to use a market order?

You’ll want to use a market order when you want your order processed as quickly as possible. When you place a market order, you effectively direct your brokerage to take whatever the best available offer is at that moment in time. 

Expert traders who place market orders are prioritizing speed and order completion above all else. Therefore, it’s a good idea to use market orders when attempting to trade investments with large capitalizations, such as  large-cap or mega-cap stocks. The high volume of shares available for these stocks helps minimize any negative price impact that your market order might face.

Conversely, it’s generally not the best idea to place market orders for thinly traded securities or periods of heightened volatility in the market. The reduced number of shares available for trading reduces the likelihood that you’ll be able to complete your order at a level close to the last quoted price. Meanwhile, volatile markets increase the likelihood of big price swings due to large market movements beyond your control, further increasing the risk of you being far off from your original quoted price. In either case, these negative effects can be further exacerbated if you enter a market order when prices are trending in the wrong direction.

How to place a market order?

You can place a market order through the standard trade order system of most online brokerage accounts. The process is similar regardless of which brokerage account you decide to use, and follows the steps below:

  1. First, select the transaction type to confirm whether you’re buying a stock, bond, mutual fund, etc, and confirm the security you’re purchasing by entering its ticker symbol.
  2. Second, select whether your trade action is a buy or sell market order, depending on whether you wish to purchase the security or sell it from your portfolio.
  3. Next, make sure you select “Market” as your order type and enter the quantity of shares you want to buy/sell.
  4. Finally, select the “time in force,” or period when you’d like the order to be executed. We outline the most typical options below:
    • Day – Immediate execution at the next best available price
    • On the Open – Immediate execution upon the next market open.
    • On the Close – Execution at the last available closing price of the trading day.

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

While a market order is an order to buy or sell a security immediately at the best available market price, a limit order places defined boundaries around your trade to ensure that it’s only executed at your specified price or better. It’s a good idea to weigh your priorities when choosing between a market order vs a limit order.

While market orders prioritize speed and certainty of execution, limit prices instead prioritize price certainty. Naturally, traders can expect limit orders to take longer to complete and also run the risk of having expire unfilled if available prices never reach their desired target. The risk with market orders is that you end up receiving a price that’s far off from the original quote that you received.

Market order strategy and implementation

When asking yourself whether you want to place a market order or a limit order, it’s a good idea to survey the current market and investment you’re targeting to ensure that you get the best order execution. Keep the following mind when attempting to place an order.

How volatile is the current market?

The choppier prices are, meaning the more large fluctuations in price, the further you’ll likely be from your target price in a market order.

How liquid is the investment you’re buying/selling?

The less liquid the investment you’re targeting, the further you’ll likely be from your target price.

How many shares are you buying/selling?

The larger your trade, the more shares you will need to amass in terms of willing bids/offers to complete your order. This makes logical sense as a single counterparty may not have/want enough shares to meet your trade in its entirety, your order may then need to combine multiple trades/offers, making your average execution price less attractive.

However, this is usually only an issue for large institutional investors that trade investments in the tens of thousands of shares. It’s unlikely that you’ll face this issue as a retail investor, unless you’re trading especially illiquid investments. 

How important is it that I complete the trade at my target price?

The more urgently you need to complete your trade, the more you risk when it comes to your pricing power. In especially choppy markets, it may pay to split up your order or wait for prices to stabilize.

Market Order FAQs