When you start trading stocks or options, one of the first things you need to understand is how to place orders. The market order is the most basic and commonly used order type. In this guide, we will explain exactly what a market order is, when to use it, and what risks you should know about.
What is a Market Order?
A market order is an instruction to buy or sell a stock immediately at the best available current price. When you place a market order, you are telling your broker that you want to execute the trade right now, and you are willing to accept whatever price the market is currently offering.
The simple version: A market order says "I want to buy or sell this stock right now, no matter what the price is." Your order gets filled almost instantly during market hours.
How Market Orders Work
When you submit a market order, here is what happens behind the scenes:
- Your order goes to the stock exchange or market maker
- The system matches your order with the best available opposite order
- If you are buying, you get matched with the lowest asking price
- If you are selling, you get matched with the highest bidding price
- The trade executes immediately (usually within seconds)
Example: Buying with a Market Order
You want to buy 100 shares of Apple (AAPL). The current market shows:
- Bid price: $175.50 (what buyers are willing to pay)
- Ask price: $175.55 (what sellers are asking)
When you place a market buy order for 100 shares, you will pay approximately $175.55 per share (the ask price). Your total cost would be about $17,555 plus any commissions.
Example: Selling with a Market Order
You own 100 shares of Apple and want to sell them immediately. Using the same prices:
- Bid price: $175.50
- Ask price: $175.55
When you place a market sell order, you will receive approximately $175.50 per share (the bid price). Your total proceeds would be about $17,550 before any fees.
When to Use Market Orders
Market orders are best suited for specific situations:
- Highly liquid stocks: When trading popular stocks like Apple, Microsoft, or Amazon that have millions of shares traded daily, market orders work well because there is always someone to trade with
- Urgency matters: When you need to enter or exit a position immediately and price is secondary to speed
- Small price differences do not matter: When the bid-ask spread is very tight (a few cents) and you do not mind paying slightly more or receiving slightly less
- Normal market conditions: During regular trading hours when the market is stable
Advantages of Market Orders
- Guaranteed execution: Your order will almost always be filled (assuming the market is open and the stock is trading)
- Speed: Market orders execute within seconds
- Simplicity: No need to specify a price, making it the easiest order type to use
- No missed opportunities: You will not miss a trade because you were waiting for a specific price
Disadvantages and Risks
Market orders come with some important risks you need to understand:
- Price uncertainty: You do not know the exact price you will pay or receive until after the order executes
- Slippage: In fast-moving markets, the price can change between when you place the order and when it executes
- Wide spreads: For less liquid stocks, the bid-ask spread can be large, meaning you could pay significantly more than expected
- After-hours risk: Placing market orders before the market opens can result in very different prices than you expected
Warning: Never use market orders for thinly traded stocks or during volatile market conditions. The price you get could be very different from what you expected.
Market Order vs Limit Order
The main alternative to a market order is a limit order. Here is how they compare:
- Market order: Guarantees execution, but not price
- Limit order: Guarantees price, but not execution
If getting the trade done immediately is most important, use a market order. If getting a specific price is most important, use a limit order instead.
Tips for Using Market Orders
- Check the spread first: Look at the bid-ask spread before placing a market order. If it is wide, consider using a limit order instead
- Use during market hours: Only place market orders when the market is open and trading normally
- Stick to liquid stocks: Market orders work best for stocks that trade millions of shares per day
- Be careful with large orders: If you are buying or selling a large number of shares, market orders can move the price against you
- Avoid earnings announcements: Do not use market orders right before or after major news events when prices are volatile
Track All Your Trades in One Place
Pro Trader Dashboard automatically imports and tracks all your trades, including the order types you use. See your performance, analyze your strategies, and improve your trading.
Summary
A market order is the fastest and simplest way to buy or sell a stock. It guarantees your trade will execute, but not at what price. Use market orders for liquid stocks when you need immediate execution and the exact price does not matter. For better price control, consider using a limit order instead.
Ready to learn more about order types? Check out our guide on limit orders or learn about stop orders for protecting your positions.