What Is a Market Order?
A market order is an instruction to buy or sell a stock immediately at the best price currently available.
Market orders emphasize speed rather than precise price control. They generally execute near the current ask price when buying and near the current bid price when selling. However, the last price displayed on a quote screen is not a guaranteed execution price.
Market Order Example
Assume a stock shows a last traded price of $50.00, a current bid of $49.98, and a current ask of $50.03.
You submit a market order to buy 100 shares. Your order attempts to purchase shares from the lowest-priced available sellers. You might receive:
- 60 shares at $50.03
- 40 shares at $50.05
Your average execution price would be $50.038 per share, even though the displayed last price was $50.00. This difference is called slippage.
Advantages and Risks of Market Orders
Advantages
- High probability of immediate execution
- Simple to place
- Useful when entering or exiting a liquid stock quickly
- Appropriate when completing the trade matters more than a small price difference
Risks
- Execution price is not guaranteed
- Slippage can increase during volatile markets
- Large orders can fill at several different prices
- Thinly traded stocks may have wide bid-ask spreads
- Prices can change between submitting and executing the order
- Premarket and after-hours liquidity may be limited
By the time an order reaches the market, the available price can differ from the price displayed when you clicked buy or sell.
When Does a Market Order Make Sense?
A market order may be appropriate when the stock is highly liquid, the bid-ask spread is narrow, the order is small relative to normal trading volume, you need to exit a position promptly, or a minor price difference matters less than completing the trade.
When should you be careful with a market order?
Use extra caution when trading a low-volume stock, trading immediately after major news, trading during a volatility halt reopening, entering a large order, trading during premarket or after-hours sessions, the bid-ask spread is unusually wide, or the market is falling or rising rapidly.
Market Order FAQs
Does a market order guarantee execution?
A market order usually has a high probability of execution during an active market, but execution isn't absolute in every circumstance. Trading halts, unavailable liquidity, market closures or brokerage restrictions can prevent or delay it. The execution price is never guaranteed.
What is slippage?
Slippage is the difference between the expected trade price and the actual average execution price. It's more likely during volatile markets, low-liquidity periods, wide spreads and large orders.
Can a market order fill at multiple prices?
Yes. A market order, or any sufficiently large marketable order, can consume shares from several price levels, producing multiple executions and an average fill price.
Why did my market order execute above the last traded price?
The last traded price reflects a previous transaction, not a promise for your next one. By the time your order reaches the market, the best available bid or ask can already differ from the price you last saw quoted.
Related Order Types
- Limit orders — control the exact price, at the cost of a guaranteed fill.
- Stop orders — trigger a market order once a price level is reached.
- Stop-limit orders — trigger a limit order once a price level is reached.
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