A market order is the foundation of trading. It is the simplest type of order. When a trader buys or sells an asset at the best available price in the market at that moment.
In the case of buying, this order is executed instantly, provided there are sell orders that cover the amount of securities the trader requests to buy.
In the case of selling, the market transaction is also executed immediately on condition that the required amount of shares can be covered by buy orders.
It's important to know that while this type of order is for buying or selling here and now, it cannot guarantee a specific price.
The key word characterizing a market order is speed. Investors who place this type of order intend to complete the transaction as quickly as possible.
- It is best to use a market order when trading highly liquid assets such as top exchange-traded funds or stocks of high-capitalization companies;
- When dealing with illiquid securities or securities characterized by a large spread between buying and selling prices, it is better to use a different type of order, such as a limit order. This way, the transaction price can be better.
A market order is the basic setting for almost all brokers. With its help, transactions are made in one click. These are usually day orders. This means that their validity period is until the end of the day (this is for those rare cases when the order, for some reason, was not executed).