A market order is one of the most common ways to buy or sell stocks for most investors most of the time. It directs a broker to buy or sell shares of an asset at the prevailing market price. If you are interested in cryptocurrency trading, or you’re involved with trading then this article will really be of help.
What Is Market Order?
A market order is an order to buy or sell something right away at the best current price available. It requires liquidity to be filled, which means it is executed by Limit orders previously placed on the order book, as previously explained.
Most investors use it as their primary method of buying and selling most of the time. Even if the asset in question is a large-cap stock or a well-known exchange-traded fund (ETF), the market will be flooded with eager buyers and sellers. As a result, a market order will be filled almost immediately at a price that is very close to the most recent posted price that the investor may see.
Understanding Market Order
When you use an online broker, the order form is normally displayed when you click on the buy or sell buttons.
The method for conducting trades on exchanges such as the New York Stock Exchange (NYSE) is done through various information required, such as the stock ticker symbol, whether you are buying or selling, and the number of shares purchased. Price types must also be chosen.
Most of the time, the default price type is “market.” As a result, because it is a market order, it is treated as such. He’s stating that he’ll pay whatever the current market price is. On the other hand, “limit” allows you to purchase or sell only at or above a predetermined price, or only at or below a predetermined price, depending on your preference.
When you believe you will be able to get the best price of the day at the end of the day, you should use market on close options. Limit orders give you the confidence to stop worrying about missing out on a profitable opportunity, allowing you to leave your computer and enjoy the rest of your day.
Advantages of Using Market Order
Depending on the situation, there are three main advantages to using a market order:
1. Market orders are easy to use. If you’re looking to trade a highly liquid coin like Bitcoin or ETH with a large market cap, a market order is a fairly safe option to use.
2. You can purchase or sell the full quantity you want of an asset. If you need to close all your positions or open one as soon as possible, a market order can almost always guarantee you’ll be able to.
3. You can trade immediately. You might have time pressure to execute a trade, such as just before closing hours. You can be sure your market order will almost always be the quickest way to do this.
Disadvantages of using a market order
Although a market order has strength mainly in its speed, it does suffer a lot in the control you have. Its main disadvantages come from the fact that:
1. You can experience high slippage with low-volume assets. You may find yourself paying more than you planned or receiving much less. Without enough volume on the order book, you will climb up or down through the orders placed.
2. You can’t plan out your trades in advance. You can’t always be at your screen ready to trade. If the market moves against your trading strategy while you’re asleep or not available, you won’t be able to place an order. Otherwise, you can use a limit order or stop-limit order to plan in advance.
Market, Limit, and Stop Orders
Market order:
A market order is an attempt to buy or sell at the current market price. It is currently buying or selling in real-time. It buys and sells orders on the “order book” that is currently available.
Slippage occurs when there are insufficient orders to fill the market order at a specific price. In times of high volatility, slippage can be significant. A market order will almost always be charged a fee. It is possible to buy or sell on the market.
Limit order:
As a speculative trade, the limit order enters an order on the order book. When you place a sell limit order, you are saying “please sell,” while a purchase limit order is saying “please buy.”
Limit orders will “fill” when market orders try to buy or sell. The market price is obtained once the order is filled. In theory, you are being filled by someone else’s market order to buy or sell, and your limit order to buy or sell will then execute.
Limit orders do not suffer from slippage, and their fees are lower than those of market orders. The maximum buy or maximum sell price can be changed.
Stop order:
A stop order executes a market order when a specified price condition is met. As a result, it is entered into the books as a limit order, but once the price is reached, it acts as a market order (as a rule of thumb, some stops use limits).
Stops, like other orders, are subject to the same fees and slippage as other orders. A stop purchase or stop sale can be set up. A stop sell order is also known as a “stop-loss.” Setting a trailing stop is another option for determining the stop price as the asset’s price rises.
Conclusion
A market orde is the most fundamental method for buying and selling financial assets. They are the best option for quickly entering or exiting a market.
However, all of this comes at the expense of losing the level of control found with other types of orders. Your best bet is to consider the specific situation you’re in and understand when a market order or something else is appropriate.
