When you’re trading stocks, forex, or other financial assets, you have two main types of orders to choose from: market orders and limit orders.
Market orders are executed immediately at the current market price. This means that you’re guaranteed to get your trade filled, but you may not get the price you want. For example, if you place a market order to buy a stock that’s currently trading at $100, your order may be filled at $101 or even higher, if the price of the stock has moved up in the meantime.
Limit orders allow you to specify the price at which you’re willing to buy or sell an asset. This means that you’re more likely to get the price you want, but there’s no guarantee that your order will be filled. For example, if you place a limit order to buy a stock at $99, your order won’t be filled until the price of the stock drops to $99 or below.
So, which type of order should you use?
It depends on your trading goals and risk tolerance. If you’re looking to get your trade filled as quickly as possible, regardless of the price, then a market order is the best option. However, if you’re willing to wait for a better price, then a limit order is the way to go.
Here is a table that summarizes the key differences between market orders and limit orders:
| Feature | Market Order | Limit Order |
|---|---|---|
| Execution speed | Immediate | May take time to fill |
| Price guarantee | No | Yes |
| Risk | Higher | Lower |
Here are some additional factors to consider when choosing between market orders and limit orders:
- The size of your trade. If you’re trading a large number of shares, you may want to use a market order to ensure that your trade is filled. This is because large orders can sometimes move the market price, making it difficult to get a fill on a limit order.
- The volatility of the market. If the market is volatile, you may want to use a limit order to protect yourself from getting a bad price. This is because the price of an asset can move quickly in volatile markets, making it difficult to get a fill on a market order at the price you want.
- Your trading style. If you’re a day trader who is looking to make quick profits, then market orders may be the best option for you. However, if you’re a long-term investor who is looking to buy and hold assets, then limit orders may be a better choice.
Ultimately, the best way to choose between market orders and limit orders is to consider your individual trading goals and risk tolerance. If you’re not sure which type of order is right for you, it’s always a good idea to consult with a financial advisor.
3 FAQs about limit order vs. market order:
1. What is the difference between a market order and a limit order?
A market order is an order to buy or sell an asset immediately at the current market price. A limit order is an order to buy or sell an asset at a specified price, or better.
2. When should I use a market order?
You should use a market order when you want to get your trade filled as quickly as possible, regardless of the price. This is often the case when you’re day trading or when you’re trying to exit a losing position quickly.
3. When should I use a limit order?
You should use a limit order when you want to protect yourself from getting a bad price. This is often the case when you’re buying a stock that you’re planning to hold for the long term, or when you’re selling a stock that you’re worried about dropping in price.
I hope this article has been helpful!
