Market Order

A market order, the most frequently placed order type, is an instruction to buy or sell a stock at the best available price at the time that the order is executed. If you obtain a price quote for Intel stock, for example, and place an order to buy 100 shares without specifying the price, it is a market order. Market orders are given priority in the communications systems of brokerage firms, so the stock is purchased before the price changes much. Market orders generally are executed within seconds of being placed. In a few situations, a market order may not be executed—when curbs are in effect on the exchange floor, for example, or when the trading of that particular stock has been halted for some reason.

The good news is that market orders are filled soon after they are placed. The downside is that you do not know in advance the price at which the order will be executed. The order generally is executed at or close to the quoted price because of the order’s prompt execution. However, if the stock is actively traded at the time the order is placed, some price deviation from the quoted price may take place. For example, a market order placed to buy a newly issued stock that begins trading for the first time on the secondary market might be executed at a much higher price than the offering price. When a fast-moving market occurs for a particular stock or stocks, a market order can be transacted at a significant price discrepancy from the quoted price.

These fast markets have a bearing on online trading. Even if investors receive real-time quotes, a market order might not keep pace with those real-time quotes. By the time an order is placed online, the market may have moved considerably, making the quote that is received only an approximation of what is happening. Because market orders are executed on a first-serve basis, if numerous orders are already ahead of the one that is placed, the execution price can be significantly different from the quoted price. In this type of market, you should use limit orders to protect against the risk of large price deviations.

A market order is usually a day order, which means mean that it expires at the end of the day if it is not executed by then.

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