Market Order
An order to buy or sell shares immediately at the current market price. Guarantees execution but the exact price is uncertain.
A market order is an instruction to buy or sell shares immediately at whatever the current market price is. The order executes right away but at a price determined by the current bid or ask, not at the price you may have intended.
Formula
For a market buy: You pay the current ask price. For a market sell: You receive the current bid price.
The difference between what you want and what you get is called slippage.
Example
If Apple (AAPL) is trading with a bid of $150.00 and an ask of $150.01, a market buy order to purchase 100 shares executes instantly at $150.01. You pay $15,001.00 total (100 × $150.01). The order is filled immediately but at the ask price, not the bid price.
How to Interpret It
- Speed vs. Price: Market orders prioritize speed. You're guaranteed to buy or sell immediately, but you pay the cost (the spread).
- When to use: Use market orders when you must execute immediately, such as when price is moving rapidly or you're ending a position urgently.
- Slippage risk: In fast-moving stocks or during volatile times, the price can move sharply between when you place the order and when it executes.
- Large orders: A very large market order might move the price against you, especially in illiquid stocks.
- Partial fills: On rare occasions, a very large market order might be partially filled at different prices if there isn't enough liquidity at the current price.
Limitations
- You don't control the execution price with a market order; you get whatever the market offers.
- During volatile or low-liquidity periods, slippage can be significant.
- Market orders during pre-market or after-hours trading can experience wide slippage due to thin liquidity.
- Once placed, a market order cannot be cancelled if the market price moves against you unfavorably.
Related Terms
- Limit Order — an order to buy/sell only at a specific price or better
- Stop-Loss Order — an order that becomes a market order if price touches a certain level
- Slippage — the difference between expected price and actual execution price
- Bid-Ask Spread — the cost you pay when using market orders