[ˈmɑːkɪt ˈɔːdə(r)]
A market order is a type of order to buy or sell a financial asset, such as stocks, bonds, or currencies, at the current market price.
What is Market Order (MO)?
A market order is an instruction given to a broker to immediately execute a buy or sell transaction of a financial asset, such as stocks, bonds, or currencies, at the prevailing market price. Market orders are often used when the trader wants to execute the trade quickly and is less concerned with the price at which the trade is executed.
The main advantage of a market order is speed of execution, as it guarantees that the trade will be executed immediately. However, the disadvantage is that the price at which the trade is executed is not guaranteed, and there may be a difference between the price you expect to pay or receive and the price at which the trade is actually executed. This difference is known as slippage.
Market orders are typically used when the trader wants to enter or exit a position quickly and is willing to accept the current market price, regardless of whether it is favorable or not.
Key Takeaways
- Unlike limit orders, which may not be executed immediately or at all, market orders are executed as soon as possible at the current market price.
- While market orders ensure immediate execution, the price at which the order is filled may not be the price at which the trader intended to buy or sell the asset. This can lead to slippage, which is the difference between the expected and actual execution price.
- Market orders are typically used for trading highly liquid assets, such as large-cap stocks or major currencies, where the bid-ask spread is narrow and the liquidity is high.
- Day traders often use MO to quickly enter and exit trades, taking advantage of short-term price movements.
Example
You want to buy 100 shares of a popular stock that is currently trading at $50 per share. You decide to place a market order with your broker to buy the stock. Your broker will immediately execute the order and fill your order with the best available price in the market, which in this case is $50 per share. The execution of the order will be swift and you will own the 100 shares of the stock at the current market price of $50 per share.
On the other hand, if you place a MO to sell 100 shares of the same stock at a current market price of $50 per share, your broker will immediately execute the order and sell the shares at the prevailing market price of $50 per share. The trade will be executed quickly, and you will receive the proceeds from the sale, minus any transaction fees or commissions.
Back to Glossary.
