May 4

Market Orders and Limit Orders Defined

In this post we are going to clearly define two types of orders you’ll cross while trading and those are market and limit orders.

 

What is a ‘Market Order’?

A market order is an order to buy or sell a security at the best available price. Market orders are the most common type of order and are typically filled almost immediately.

When you place a market order, you’re indicating that you’re willing to pay whatever price the market is currently trading at. That means if you’re trying to buy shares of a stock that’s currently trading at $10, your order will likely be filled at that price.

If you want to ensure that your order is filled at a specific price, you can place a limit order instead. With a limit order, you’ll only get filled if the stock is trading at or below your specified price.

 

Why would someone use a Market Order?

There are a few reasons why someone might use a market order. If you need to buy or sell a security quickly, a market order is a good option. Market orders are also a good choice if you’re trying to avoid paying a higher price for a security (if you’re buying) or getting a lower price for a security (if you’re selling).

Of course, there are also some downsides to market orders. Since you’re essentially giving up control of the price you pay or receive for the security, there’s always the potential that you could end up paying more than you wanted to (if you’re buying) or receiving less than you wanted to (if you’re selling).

In general, market orders are best used when you need to buy or sell quickly and don’t mind giving up some control over the price.

 

How to make a Market Order

Making a market order is simple. Just log into your online broker and hit ‘buy’ or ‘sell’ at the market.  But, it’s important to understand what you’re doing when you make this type of order.

market order and limit order

What is a Limit Order?

A limit order is a trade order that sets the maximum price you are willing to pay for a security, or the minimum price you are willing to sell it at. A buy limit order can only be executed at the limit price or lower, while a sell limit order can only be executed at the limit price or higher. Limit orders give you more control over your trade execution, but they are not guaranteed to be filled.

 

Why use a Limit Order?

Whether you are buying or selling shares, a limit order gives you more control over the price at which your trade is executed. By using a limit order, you can specify the exact price that you are willing to pay (or accept) for a stock. This means that you will not have to worry about the stock being sold (or bought) at a price that is higher (or lower) than what you were hoping for.

There are several advantages to using limit orders:

1) You can ensure that you get the best possible price for your trade.

2) You can protect yourself from sudden changes in the market price of a stock.

If you are considering using a limit order, it is important to keep in mind that there is no guarantee that your trade will be executed at the exact price you have specified. It is also important to remember that the prices of stocks can change rapidly, so you will need to monitor your trade closely to ensure that it is executed at the desired price.

 

How to Place a Limit Order?

A limit order is an order to buy or sell a stock at a specific price or better. For example, let’s say that you wanted to buy shares of XYZ Corporation but you didn’t want to pay more than $10 per share. In this case, you would place a limit order for XYZ stock at $10.

If the stock is trading at $10 or less when your order is executed, then you will get the shares at $10 per share. However, if the stock is trading at $11 or more, then your order will not be filled and you will not get any shares.

 

Conclusion

A limit order is an order to buy or sell a security at a specified price or better. A buy limit order can only be executed at the limit price or lower, and a sell limit order can only be executed at the limit price or higher. Limit orders are not guaranteed to be executed. If the market price does not reach the limit price, the order will not be executed.

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