A market order is a basic trading order that instructs the broker to buy or sell at the best available price. Market orders are considered the most immediate way to enter or exit a trade and are often executed instantly.
Benefits of Market Orders
Quickly enter or exit the market
One of the main advantages of using a market order is that the trader is guaranteed to complete the trade. If a trader absolutely needs to enter or exit a trade, a market order is the most urgent type of order.
Market orders are usually executed almost immediately. When executing instant orders is a higher priority than price execution, market orders are a preferred approach.
Disadvantages of market orders
No price guarantee
Market orders do not guarantee the price and therefore do not allow any precision in order entry.
When a market order is used, the trader has no control over the execution price. Although the order is executed at the best price available at that time, the execution price may be significantly different from the last price quoted before the order was received.
In fact, market orders are sometimes executed at multiple price levels because the “best available price” can change from moment to moment.
Liquidity and slippage
In highly liquid markets, such as crude oil futures or stocks like Microsoft, market sell orders will typically be executed at the bid price and market buy orders at the ask price. However, even with very liquid securities, this is not always the case.
In fast-moving markets, market orders can cause slippage, a difference between the price the trader expects and the price at which a trade is placed. Using market orders exclusively in markets with high liquidity can help avoid slippage, which can mean the difference between a winning or losing trade.
Learn about other basic command types in this quick video overview:
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