The Basics of a Market Order

A market order is a type of order that you can place when you are buying stock in order to have the transaction placed immediately at the market price. The order will be passed into the market place and a broker can then fill the order with a buyer that is closest to the current market price. Here are the basics of the market order and how it works.

Market Order

When you place an order in the stock market, you will have two options. You can choose a market order or a limit order. With a limit order, you will specify the exact price that you are willing to pay. If the market price increases to the threshold you established, then your order will be processed with your broker. With a market order, your order will automatically be placed into the market and be filled at the best current price available. If you are buying, it will be filled with the lowest priced that a seller is willing to take.

Instant Execution

One of the primary benefits of using a market order is that you will be able to get a, nearly, instant execution. This means that you can immediately have your order filled if you need to. Some trading strategies require you to act quickly in order to make the necessary profits. If this is the case, and time is of the essence, then a market order will definitely be your best option. The only exception to this rule is if you are trading something that does not have good liquidity. In some cases, if there are not enough traders in the market, you may not be able to find a buyer or seller. However, if you are trading stock on a major stock exchange, you should always be able to find other traders to trade with.

Price Discrepancies

With a market order, you may run into some price discrepancies. When you leave it up to the broker to fill your order at the market price, you might end up paying more than you had planned on initially. When you look at real-time stock quotes and then you put in a market order, there may be a discrepancy between the quote and the purchased price. Since the market is moving very quickly, prices can change without notice. When this happens, you might find that the price that your order is filled at different purchase prices.

Large Orders

When you are dealing with large orders of thousands of shares of stock, there is a good chance that you will have partial orders filled at different prices. Part of your order will be at a price that you expected, while another part might be at a price that is quite a bit higher. This is because there is a limited amount of volume in the market. Many times, this is only way that your broker can fill your order.

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