A market order is one of the most simple order types and is commonly used. It is an instruction to buy or sell an instrument immediately at the best available price in the market. Market orders are favoured by investors who prioritise the execution of the order over the price at which it is executed.
Market orders are typically executed immediately for both buy and sell orders.
- Characteristics of market orders
- How market orders work
- Example of a market order
- Advantages and disadvantages of market orders
- How can I place a market order?
- Can I use market order for all instruments?
Characteristics of market orders
- Immediate execution: Market orders are executed as quickly as possible, making them ideal for situations where you want to enter or exit a position without delay.
- Price uncertainty: The exact price at which a market order will be filled is not guaranteed. This is because the order is filled at the best available price in the market at that moment, which can fluctuate rapidly, especially in volatile markets.
- Liquidity considerations: Market orders are generally filled quickly in highly liquid markets where there are many buyers and sellers. In less liquid markets, there might be a delay, and the execution price could be less favourable.
How market orders work
When a market order is placed, it is matched with the best available bid or ask price. For a buy order, it is matched with the lowest ask price, and for a sell order, it is matched with the highest bid price. This ensures that the order is executed promptly, but the final price may differ from the last traded price due to market fluctuations.
Example of a market orderImagine the shares of company XYZ are currently trading at USD 50 per share. Buy order: Imagine you want to purchase 100 shares of company XYZ. By placing a market order, you instruct your broker to buy the shares immediately at the best available price. If the lowest ask price is USD 50.25 at the time your order reaches the market, your order will be filled at USD 50.25 per share - higher than what the shares were trading at, when you placed the order. Sell order: Conversely, if you own shares of a company and wish to sell them quickly, you can place a market order to sell. Suppose the highest bid price is USD 49.90 when your order is executed; your shares will be sold at this price. |
Advantages and disadvantages of market orders
Advantages
- Speed: Market orders are executed quickly, making them suitable for investors who want to enter or exit positions without delay.
- Simplicity: Market orders are straightforward to place, requiring no additional parameters like price limits.
Disadvantages
- Price uncertainty: The final execution price may differ from the expected price, especially in fast-moving or less liquid markets.
- Potential slippage: In volatile markets, the price at which the order is executed may be less favorable than anticipated due to rapid price changes.
How can I place a market order?
You can place a market order from all Saxo platforms.
From the Trade Ticket > Type > Choose Market
Can I use market orders for all instruments?
Market orders can be used for most instruments. However, you might experience that you cannot use market orders for OTC stocks and mutual funds.