When you buy or sell a stock, you choose a type of order. Two common types are the market order and the limit order. This page explains each one in plain words, using only what Investor.gov and FINRA state.
Market order: an order to buy or sell right away. It guarantees that the order will be executed, but it does not guarantee the execution price.
Limit order: an order to buy or sell at a specific price or better. It is not guaranteed to execute. It can only be filled if the stock’s market price reaches the limit price.
This page is general information only. It is not financial advice.
A market order is an order to buy or sell a security immediately. Investor.gov also describes it as an order to buy or sell a stock at the best available price, and as an order to buy or sell a stock at the current market price.
Generally, a market order will be executed immediately. A market order generally will execute at or near the current bid (for a sell order) or ask (for a buy order) price.
Unless you specify otherwise, your broker will enter your order as a market order. FINRA says a market order is the most common type of investor order, and that brokerage firms typically enter your order as a market order unless you specify otherwise.
FINRA says this type of order provides the most certainty that your order will be executed because it is not tied to any restrictions. FINRA also says a market order generally will execute at or near the current bid or ask prices in the marketplace during normal trading hours, 9:30 a.m. to 4 p.m. Eastern Time.
The Investor.gov glossary puts it this way: the advantage of a market order is that, as long as there are willing buyers and sellers, you are almost always guaranteed your order will be executed. The disadvantage is the price you pay when your order is executed may not be the price you expected.
The price at which a market order will be executed is not guaranteed.
It is important for investors to remember that the last-traded price is not necessarily the price at which a market order will be executed.
The price at which a market order will execute often deviates from the last-traded price or “real time” quote due to the demand for a stock and the prices of available liquidity at the time of execution.
FINRA says that, on the downside, you might not get the price you saw or were originally quoted, especially in fast-moving markets.
FINRA also says that if you place your order before or after normal trading hours, you should consider the possibility that news events or other factors might significantly impact the price of the security when the market opens again.
Parts of a large market order may execute at different prices due to lack of liquidity at a price at the time of execution.
Example from Investor.gov: An investor places a market order to buy 1000 shares of XYZ stock when the best offer price is $3.00 per share. If other orders are executed first, the investor’s market order may be executed at a higher price.
Second example from Investor.gov: An investor places a market order to buy 1000 shares of XYZ stock at $3.00 per share. The order could have 500 shares execute at $3.00 per share and the other 500 shares execute at a higher price.
A limit order is an order to buy or sell a security at a specific price or better. FINRA describes it as an order to buy or sell a security at or better than a specified price, called a “limit price.”
A buy limit order can only be executed at the limit price or lower. A sell limit order can only be executed at the limit price or higher.
FINRA says limit orders are for investors who know the price they want for a particular securities transaction and want to manage market risk. FINRA says they are often used when obtaining the right price is more important than quick execution.
FINRA also says that, while market orders can leave a buyer or seller exposed to changes in the current price available in the market, limit orders allow you to decide at what price you want to buy or sell.
Example from Investor.gov: An investor wants to purchase shares of ABC stock for no more than $10. The investor could submit a limit order for this amount and this order will only execute if the price of ABC stock is $10 or lower.
A limit order is not guaranteed to execute. A limit order can only be filled if the stock’s market price reaches the limit price.
While limit orders do not guarantee execution, they do help ensure that an investor does not pay more than a pre-determined price for a stock.
FINRA says you are guaranteed to get your limit price or a better price if your order is executed. FINRA also says there is a chance your order does not get executed at all. For example, if the market price fails to match or better your limit price while your order remains active, it will not be executed.
FINRA says some limit orders include a time limit within which the trade must be placed at (or better than) the specified price. FINRA also says these orders generally might have higher execution costs than market orders.
| Question | Market order | Limit order |
|---|---|---|
| What does the order ask for? | Buy or sell a security immediately, at the best available price. | Buy or sell at a specific price or better. |
| Is execution guaranteed? | Yes. This type of order guarantees that the order will be executed. | No. A limit order is not guaranteed to execute. |
| Is the price guaranteed? | No. The price at which a market order will be executed is not guaranteed. | If the order is executed, FINRA says you are guaranteed to get your limit price or a better price. |
| Buy price rule | Generally will execute at or near the current ask price for a buy order. | Can only be executed at the limit price or lower. |
| Sell price rule | Generally will execute at or near the current bid price for a sell order. | Can only be executed at the limit price or higher. |
Investor.gov says the order types and trading instructions available to you may differ based on the brokerage firm. Some brokerage firms may not offer some of the order types and trading instructions described in its bulletin. Some brokerage firms may offer order types with similar names with important differences.
Investor.gov says the list of order types and trading instructions in its bulletin is not complete. It says you should contact your brokerage firm to determine the availability of order types and trading instructions, and the firm’s specific policies regarding their use.
FINRA says that, before building a buy or sell strategy on certain types of orders, you should ask your brokerage firm what types of orders you can place and what they cost. FINRA says to ask about the firm’s procedures for handling the execution of securities transactions and different order types, particularly during volatile market conditions.
FINRA also says: no matter what type of order you choose, you cannot completely eliminate market and investment risks.
Security: In the sources used here, market and limit orders are described as orders to buy or sell a security, and also as orders to buy or sell a stock.
Limit price: The specified price in a limit order. A buy limit order can be executed only at or below the limit price. A sell limit order can be executed only at or above the limit price.
Execution: In the sources used here, an order that is executed is an order that is filled. Investor.gov says a limit order can only be filled if the stock’s market price reaches the limit price.
This page is general information only. It is not financial advice.