Market order vs limit order
A market order trades right away at the best available price, so it always fills but you do not choose the price. A limit order trades only at your price or better, so you control the price but it might never fill.
Market order and Limit order side by side
| Market order | Limit order | |
|---|---|---|
| What it does | Trades immediately at the best available price | Trades only at the price you set, or better |
| Does it fill | Always, if there is anyone to trade with | Not necessarily; it can wait and may never fill |
| Who sets the price | The market, at the moment of the order | You |
| A buy fills at | The ask, the lowest price sellers want | Your limit, or lower, when sellers reach it |
| A sell fills at | The bid, the highest price buyers will pay | Your limit, or higher, when buyers reach it |
| Main risk | A worse price than you expected, in a fast or thin market | Missing the trade altogether |
Bid and ask
A share has a bid, the best price buyers will pay, and an ask, the best price sellers will accept. The gap between them is the spread. A market buy fills at the ask and a market sell fills at the bid, so using market orders in both directions costs you the spread.
Certainty against control
A market order gives certainty of trading and gives up control of the price. A limit order gives control of the price and gives up certainty of trading. Neither is better in every case. It depends on whether getting the trade done or getting your price matters more.
When a limit order waits
A buy limit set below the ask rests in the order book until sellers come down to it. If the price never gets there, the order never fills. That is not a failure: it is exactly what a limit order is for.
In a thin market
When few people are trading, the spread is wide and a large market order can get a noticeably worse price. A limit order protects you from that, at the cost of possibly not trading.
Orders against a bid of ₹99.50 and an ask of ₹100.00 (hypothetical)
A market buy fills immediately at ₹100.00 and a market sell at ₹99.50. A limit buy at ₹99.50 does not fill, because sellers are asking ₹100.00. It waits until the price falls to ₹99.50 or below, and may never fill. A limit buy at ₹100.00 or higher fills at ₹100.00.
Buying 100 shares at the market and selling them straight away at the market means buying at ₹100.00 and selling at ₹99.50: ₹0.50 a share, ₹50 in all, lost to the spread before any charges.
Common questions
- Which is better, a market order or a limit order?
- Neither in every case. A market order is for when getting the trade done matters most. A limit order is for when the price matters most.
- Why did my limit order not fill?
- Because no one was willing to trade at your price. It waits until the price reaches your limit, and it might never do so.
- Does a market order always get the price I see?
- Not always. It fills at the best available price at that moment, which can differ from the last price you saw, especially in a fast or thin market.
- What is the spread?
- The gap between the bid and the ask. It is a cost you meet each time you trade at the market.
Related terms
This page compares ideas and does not recommend either one. Maetis does not give investment, tax or legal advice.