Investing 101: Market Order

Market Order

As per the SEC: A market order is an order to buy or sell a stock at the best available price.  Generally, this type of order will be executed immediately.  However, 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.  In fast-moving markets, the price at which a market order will execute often deviates from the last-traded price or “real time” quote.

A few points that need to be emphasized:

  • Order used to guarantee an execution, but not guarantee a price or time of execution.
  • The risk of market orders is that you have no control over what the execution price is. 
  • Aavoid using them with options, especially option spreads.
  • Be wary of using market orders on stocks with a low average daily volume: in such market conditions the ask price can be a lot higher than the current market price (resulting in a large spread). In other words, you may end up paying a whole lot more than you originally anticipated! It is much safer to use a market order on high-volume stocks. 

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shakaama

Ex law school student. I was kicked out for revealing I had a heart actually beating inside. I used to be in a modern dance company. I'm working on my 7 miracles to be proclaimed a saint by the pope. #1 is really hard, but once i get over that hump the other 6 will be a cinch.

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