Market orders and limit orders are the two fundamental order types every trader uses. Each has its place, and knowing when to use which can significantly impact your trading results. Let us compare them side by side and help you decide which to use in different situations.
Quick Comparison
Market Order: "Buy/sell NOW at whatever price" - Prioritizes speed over price
Limit Order: "Buy/sell ONLY at this price or better" - Prioritizes price over speed
Market Orders Explained
A market order executes immediately at the best available price. When you click "buy" with a market order, you get shares right away. The trade is virtually guaranteed to happen during market hours.
How it works:
- You submit a market buy order for 100 shares
- Your order matches with the lowest asking price
- Trade executes instantly
- You own shares at whatever the market price was
Market Order Example
Apple (AAPL) is quoted at $185.50 bid / $185.52 ask.
You place a market order to buy 100 shares. Your order fills immediately at $185.52 (the ask). Total cost: $18,552.
The trade happened in under a second, but you paid whatever price the market offered.
Limit Orders Explained
A limit order only executes at your specified price or better. You set the maximum you will pay (for buys) or minimum you will accept (for sells). If the market never reaches your price, the order never fills.
How it works:
- You submit a limit buy order for 100 shares at $185.00
- Your order waits until the ask price drops to $185.00 or below
- If/when price reaches $185.00, your order fills
- If price never reaches $185.00, nothing happens
Limit Order Example
Apple (AAPL) is at $185.50. You think it might dip and want to buy at $185.00.
You place a limit buy order at $185.00. The order sits and waits. Later that day, AAPL dips to $184.90. Your order fills at $185.00 (or possibly better at $184.90).
You saved $0.50-$0.52 per share compared to the market order.
Side-by-Side Comparison
| Feature | Market Order | Limit Order |
|---|---|---|
| Execution speed | Instant | Only when price is reached |
| Execution guaranteed | Yes (during market hours) | No |
| Price guaranteed | No | Yes (at limit or better) |
| Slippage risk | Yes | No |
| Best for | Liquid stocks, urgent trades | Patient trades, illiquid stocks |
| Priority | Getting filled | Getting price |
Advantages of Market Orders
1. Guaranteed Execution
When you need to be in or out of a position, market orders deliver. There is no waiting, no hoping the price reaches your level. The trade happens.
2. Speed
In fast markets, seconds matter. Market orders get you in immediately so you do not miss the move.
3. Simplicity
No calculations needed. No deciding on a price. Just buy or sell and it is done.
Disadvantages of Market Orders
1. Slippage
You might pay more (or receive less) than expected. In volatile conditions, the fill price can differ significantly from the quoted price.
2. Bad Fills in Illiquid Stocks
Low-volume stocks can have wide bid-ask spreads. A market order fills at whatever price is available, which could be significantly worse than expected.
3. Vulnerability to Manipulation
In some situations, large market orders can move prices against you, especially in smaller stocks.
Advantages of Limit Orders
1. Price Control
You decide exactly what you pay or receive. No surprises, no slippage beyond your limit.
2. Better Fills Over Time
Patient traders often get better prices with limits. Stocks fluctuate throughout the day, and limits can catch favorable moves.
3. Works While You Sleep
Set a limit order and it works for you automatically. If the price hits, you are filled without watching screens.
4. Protection in Illiquid Stocks
Limits prevent getting terrible fills in stocks with wide spreads or low volume.
Disadvantages of Limit Orders
1. Might Not Fill
If the stock never reaches your price, you miss the trade entirely. Being too aggressive with limits means missing opportunities.
2. Partial Fills
Sometimes only part of your order executes if there is not enough volume at your price.
3. Can Miss Moves
While you wait for your limit price, the stock might move away and never come back. Perfect is the enemy of good.
When to Use Market Orders
- Highly liquid stocks: Blue-chips with penny-wide spreads
- Urgent situations: Stop losses triggering, news events
- Regular market hours: Best liquidity means tighter spreads
- Small positions: Price impact is minimal
- You must be in: Opportunity cost of missing outweighs slippage
When to Use Limit Orders
- Illiquid stocks: Wide spreads make market orders expensive
- Extended hours: Pre-market and after-hours have poor liquidity
- Large orders: Breaking up with limits reduces market impact
- Specific entry points: Technical levels, support/resistance
- You want a better price: Patient and willing to miss if not filled
- Setting profit targets: Automatically sell when goal is reached
Real-World Scenarios
Scenario 1: Breaking News
A company you own just announced bad earnings. The stock is dropping fast.
Use: Market order to exit immediately. Every second costs money.
Scenario 2: Buying the Dip
You want to buy a stock if it pulls back to a support level at $95.
Use: Limit order at $95. You get filled only at your target price.
Scenario 3: Low Volume Stock
A small-cap stock is quoted at $10.00 bid / $10.50 ask (5% spread).
Use: Limit order between the spread. Market order would cost 5% immediately.
Scenario 4: Taking Profits
Your trade is up 20% and you want to sell at $120.
Use: Limit sell order at $120. Automatically sells when target is hit.
Pro Tips for Order Selection
- Check the spread first: Wide spread? Use limits. Tight spread? Market is fine.
- Consider urgency: Need to trade now? Market. Can wait? Limit.
- Account for volume: Low volume stocks punish market orders.
- Use both together: Enter with limits, exit with market stops for protection.
- Review your fills: Track slippage to see if your order choices are working.
The Hybrid Approach
Many successful traders use both order types strategically:
- Enter positions with limit orders for better prices
- Set stop losses as stop-market orders for guaranteed exits
- Take profits with limit orders at specific targets
- Emergency exits with market orders when necessary
Analyze Your Order Performance
Pro Trader Dashboard tracks all your orders and shows execution prices. See which order types work best for your trading style.
Summary
Market orders guarantee execution but not price. Limit orders guarantee price but not execution. Use market orders for liquid stocks and urgent situations. Use limit orders for better prices when you can afford to wait. The best traders master both and know which to use in every situation.
Dive deeper with our individual guides on market orders and limit orders, or learn about stop loss orders for risk management.