- Market orders are instructions to your broker to buy or sell a security as soon as possible.
- A market order is typically guaranteed to go through, although it doesn't guarantee the price of the security you're buying.
- With a market order, the final price of your trade will be set by the market.
When you place a buy or sell order on an exchange, such as for a stock, bond, or ETF, you have to decide how you'd like your broker to execute that trade. This may sound like a complicated process, but a market order is typically the default process that makes it relatively fast and easy to trade. Still, it's important to understand your options before going with the default.
What are market orders?
Compared to other types of orders, like limit orders or stop-loss orders, a market order is a good choice for investors who are sure they want to buy or sell the security right away. Here's a closer look at what a market order is:
Definition of a market order
A market order is an instruction to your broker to place a trade as soon as possible at the market price. For example, if a stock price quote is currently $50.25, that might be the middle ground between bids (i.e., buy offers) at $50.24 and asks (i.e., sell offers) at $50.26. So, a market order might mean that your broker fills the order at the best available ask price — in this case $50.26.
Execution priority
While some orders like limit orders aren't placed until a certain price can be attained, market orders are often executed immediately. They have top execution priority, meaning your broker tries to fulfill the trade as soon as possible at the best available price. Typically, the only reason why you'd have to wait is if the market is closed or if there's extremely low liquidity, so it takes time to find a buyer or seller. But for most stocks, the process is almost instantaneous.
No price control
With a market order, you're not guaranteed a specific price. The price will be set based on what's available in the market at the time your order is fulfilled; it's called a "market" order because the market sets the price. Your broker will try to find you the best price, but it depends on factors such as supply and demand at that time and the technologies your broker uses.
How do market orders work?
Market orders don't require much input from you other than placing the buy or sell request. But if you're unsure how to do that, or just want to understand more about what happens behind the scenes, here's how market orders work:
Order placement
When you tell your broker to buy or sell stocks for you, whether that's by clicking the trade button on your broker's website, or by calling your broker over the phone, you'll usually be able to choose between a few different options for how to submit your trade.
If you're using an online brokerage, those different options might appear under the header "order type," when you go to submit your trade. Depending on your brokerage, you may be able to choose between having your trade executed as a market order, a limit order, a stop order, a stop limit order, or even a trailing stop order.
Order filling
If you submit a market order to your broker to buy or sell a stock, bond, ETF, or other security, your broker will typically execute the trade immediately at the next best available price if the market is currently open or upon market opening if it is closed.
With a market order, the market price could be higher or lower than the last traded price you see on the broker's website or app. If the price of the stock is volatile, or if you've placed your order when the market is closed, the price could swing significantly. This means if you submit a market order, you might spend more money than you were expecting to buy a stock, or you might earn less money than you were expecting when you sell a stock. Oftentimes though, the price you get is very close to the last traded price or the current quote.
Partial fills
Occasionally, a market order results in partial fills, such as when liquidity is low and there aren't enough shares available to fill the entire order, or when the price is changing too rapidly to execute all shares at the current best price. In these cases, your broker may need to fill the remaining order in multiple batches at slightly different prices, though this still typically occurs almost instantly.
Market order examples
Let's look at an example of how a market order works when the markets are closed.
At 9 p.m. on a Tuesday, after the stock market is closed, Jenny decides she wants to buy shares of Apple (AAPL). On her broker's website, she sees that the last traded price was $227.50. She decides to submit a market order for 10 shares.
When the market opens in the morning, the new ask price of AAPL is $229.50. Her broker submits the order, and Jenny ends up paying $2,295 for her 10 shares of Apple ($229.50*10), a bit more than what she was originally expecting (the cost would be $2,275 or $20 less total at the last traded price when the market order was placed).
Now let's take a look at an example of how a market order works when the markets are open. For a popular, high-volume stock like Apple (AAPL), Amazon (AMZN), or Tesla (TSLA), Jenny would be unlikely to see a major price swing during the trading day. Suppose on Friday at 10 a.m., Jenny decides she wants to sell her 10 shares of AAPL. When she logs on to her broker's website, Jenny sees that AAPL is trading at $227.99.
She submits a market order to sell her 10 shares. Just a few minutes later, she gets a confirmation email from her brokerage letting her know that the order has been executed at an average price of $227.98 — resulting in receiving a total of just 10 cents less than if the trade executed at the last traded price. The price change was close to zero, because she submitted a market order for a high-volume stock while the markets were open.
For stocks and ETFs with a high trading volume, "the spread (the space between the 'bid' offers and the 'ask' offers) is usually quite small, meaning you can expect to have your market order executed within a few cents of the spread," explains Todd Keffury, founder and Chartered Retirement Planning Counselor at Cadenza Financial Planning.
However, large investors may be more sensitive to small changes like this, considering they may have thousands of shares and make thousands of trades, so little costs can add up. Also, low-volume stocks often have wider bid-ask spreads, so the price you get on a market order may be even less favorable.
Quick tip: If you're buying a low-volume security, consider placing a limit order instead of a market order to reduce the risk of paying more than you'd like for the stock.
Advantages of market orders
Market orders offer several advantages, such as:
Guaranteed execution
Market orders are almost always filled, unless something unusual happens like trading of a security gets halted or there's extremely low liquidity. For the most part, though, you can rest assured that your market order will execute.
That certainty helps make market orders a good option for investors who want to simplify and automate how they buy securities. For example, investors who want to use the dollar-cost averaging strategy by setting aside a fixed amount of money every month to invest in the stock market might benefit from initiating trades with market orders so that the orders consistently go through.
Speed and simplicity
Market orders are typically the default option and can be placed without much effort. They also execute almost immediately, so if you want to buy or sell a stock as soon as possible, that could be the way to go. This speed often comes at a slight cost, as you might be able to squeeze out a marginally better price with a limit order, for instance. However, it could pay off to own the security right away, such as if the stock price is quickly rising.
Disadvantages of market orders
Although market orders are often convenient and fast, there are some potential risks with market orders, such as:
Lack of price control
With market orders, you don't know exactly what price you'll pay for a security. You can get a good idea by looking at the last trade or the current quote price, or dive into bid/ask offers if your broker provides that detail, but you still can't specify the exact price you want to execute at. That can create risk, especially in highly volatile markets or if you're placing an order overnight and don't know what pricing will be when the market opens.
Also, if you own a large portion of a security you're trying to trade, a market order you place could have an outsized effect on the market price. This isn't something the average investor encounters, but very large ones like pension funds often have to split orders up and often use controls like limit orders to place large orders effectively.
Potential for slippage
Related to the lack of price control is the risk of slippage, meaning executing the trade at an unfavorable price compared to what you expected (e.g., the ticker price is $50.25 but your market order executes for $50.05). This might not matter much for small orders, but if you're investing tens of thousands or millions of dollars, even a fraction of a percent could be expensive.
Quick tip: If you submit a market order with a brokerage that engages in the controversial practice of "payment for order flow," you may be less likely to get the best possible price for your stock. Brokerages are supposed to seek the best price, but if they're routing orders to market makers based on the commissions they receive, that could create unconscious bias, and it can be hard for regulators to stay on top of every order and prove whether or not the broker sought the best price.
Pros and cons of a market order
A market order is a good choice for some investors, but it's not right in all situations. There are important pros and cons to market orders, especially for investors who own a very large number of shares, or investors who are trading in uncommon or low-volume securities.
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When to use market orders
While everyone has their own goals and beliefs, some common situations when it makes sense to use market orders include:
Trading high-volume stocks
If you're trading a stock that has strong liquidity, due to high trading volume, then a market order often gets you pricing similar to the quote price, without having to worry about the trade not executing. Most commonly known companies like Apple, Amazon, and Tesla are high-volume stocks, and you can see daily trading volume on most brokerage sites or apps. If the volume is in the millions, that's generally a good sign for liquidity.
Time-sensitive situations
If speed is your priority, like if you want to liquidate a stock holding as soon as possible or buy a stock that's reacting to breaking news, then that could be the best time to use market orders.
Small orders
Market orders are generally better suited for small orders, whereas large market orders can lead to significant slippage, especially in a volatile market. However, most retail investors trade what's considered small orders. Even if you're placing an order for, say, 100 shares at $100 per share ($10,000 total), paying 10 cents over the quote price — so $100.10 — only results in paying $10 more out of a $10,100 order, and that may be worth it to quickly execute the order. But if you're a high-net-worth investor placing an order for 10,000 shares at $100 per share ($1 million total), then you'd perhaps be more sensitive to slippage, as it can result in thousands of dollars of excess costs.
Market orders vs. limit orders
If a market order doesn't seem right for you, consider trading using a limit order. With a limit order, you specify to your broker your desired price, and your broker will execute the trade only if the market price is better than your stated price.
For example, for a stock that's currently trading at $50.25, you might set a limit order to buy it at $50, meaning the order will only execute if the stock drops to $50 or less, thereby saving you money compared to investing at $50.25.
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Even though limit orders give investors more control over the price than market orders, a market order could be a better choice for many long-term investors, especially for high-volume stocks, when you want a guarantee of executing the trade. However, if you're worried about slippage, then you might prefer to set a limit order.
Quick tip: You're less likely to face unexpected swings in stock prices that cause slippage during the trading day, instead of after hours. The New York Stock Exchange and Nasdaq normal trading hours are between 9:30 a.m. and 4:00 p.m.
FAQs about market orders
Can I cancel a market order?
It's usually hard to cancel a market order because these trades are executed almost instantly. But if for some reason the order is taking time to fill, or if you placed it when the market is closed, you can cancel.
What are the fees for market orders?
The fees for market orders are typically the same as for other orders. Many brokers no longer charge transaction fees for any orders, but some charge a small flat fee or a percentage of the trade value. That said, you may incur indirect fees via slippage.
Are market orders suitable for day trading?
Market orders can be suitable for day trading due to the speed of execution. However, you'll need to weigh that against the risk of losing price control, which can make a difference for many day trades.
