Simple Difference Between Market Order and Limit Order

  • February 22, 2018

What's the difference between market order and limit order? Watch our video to find out.

The Difference Between a Market Order and Limit Order

  1. Here's the difference between a market order and limit order:
  2. Market orders only place during market hours and fills at current market price
  3. Limit orders allow you the ability to set purchase and sell pricing
  4. Market orders fill right away
  5. Limit orders fill when buy or sell limit is reached

When purchasing a stock have you ever wondered about the difference between market order and limit order? There's a big difference between both orders and this video will go into which is the safest and most popular method when trading. 

As you go to purchase a stock you always want to keep two things in mind. The first thing you want to make sure of is getting the best price possible.

The second thing you want to know when stock trading is how quickly do you want to be filled. Are you trying to get filled quickly because the stock is running fast after announcing news? Either way, you need to know the difference between a market order and limit order and how to use them.

Basics: Difference Between Market Order and Limit Order

First, figure out how many shares you wish to buy. A stocks price is going to affect how many shares you can buy. Have a plan for this. Most beginner’s aren’t aware of the difference between market order and limit order. A market order can only be placed during market hours.

It will be placed at the current market price of the stock. This is typically somewhere between the bid and ask of a stock. However, when you place a market order, you are asking to be matched up with a seller, and get filled immediately.

You may not get the price you were expecting for the stock, especially if the stock is moving quickly. Pay close attention to the bid price (limit order buyers) as well as the ask price (limit order sellers) (register for our free stock trading courses and you'll learn how to read the stock market).

Limit Order Vs Market Order

Above we see a order entry screen on ThinkOrSwim.

A limit order allows you as the buyer to set the purchase price. The same is true if you are a seller, setting the selling price.  If the market doesn’t reach your limit order price, it won’t fill and will remain open until you cancel it.

Limit orders also allow you to place the request after market hours (commonly known as extended hours session) and it will be filled when the stock begins trading again during market hours.

Another option is to activate "extended hours trading" with your brokerage account so you can trade in the pre-market or after-hours. The bottom line, limit orders give you more control over what you’re willing to pay. 

We teach how to trade live in our trading room. Take our free online trading courses if you need more help.

Which Is Better Limit Order or Market Order?

  1. Here's what's better between a limit order or a market order:
  2. Market orders are good for instant fills but not best pricing
  3. Limit orders are best for pricing but not instant fills

Market orders deal primarily with speed. You want to get filled quickly with a market order and be on your way. The price is secondary to how quickly you can get the trade off.

A limit order gives you control of the price. It may not fill right away but you’re not going to be paying more than you want for a stock. Speed Vs. Price.

Market order vs Limit Order

 Market Order with ThinkOrSwim

1. How Market Orders Work

When you think of placing a trade in the stock market, you’re usually thinking of a market order. You see a stock that's moving and you want to get in on the price action.

You send the order to your broker and it’s processed at market price. In fact, it’s pretty much the easiest buy and sell method. When you go to sell you hit sell and the order is processed at the market price. Bing bang boom.

This method is usually used when using day trading strategies. Day trading is when you’re buying and selling a stock in the same day. This is usually fast paced as the stock is volatile and price action moves rapidly. The bid and ask are usually tight, but moving quickly. Take our swing trading course.

2. Fluctuation

The trouble with buying using a market order is the rapid fluctuation in price. A market order example could be putting your market order in when the price of a stock is $4.67 but there’s a spike and when the order is received the price is now $4.87 so you’re now in the stock at $4.87.

You can put a market order in after hours on a stock but it will be filled the next day at the market price the next trading day. That is very risky.

Just because a stock is doing something after hours or premarket doesn’t guarantee that it will open that way the next day.

As we stated earlier in this post about the difference between market order and limit order placement, the limit order gives you more control over the buying and selling price.

This is where the bid and the ask come into play. The bid price is the highest price a trader is willing to pay. The ask price is the minimum price a seller is willing to receive.

A market order will fill at the bid price, where the seller is taking the most money they can get, while a limit order is allowing you to choose. This is especially helpful when the bid and the ask prices have a large spread.

Learning how to dip buy at support levels is a popular trading strategy. Check out our how to buy the dip post.

3. How Limit Orders Work

You want to get into a stock but it has a large bid/ask spread. You have a certain amount you’re willing to risk but right now the asking price is too much, you know the stock needs to come down, so you put in a limit order.

The price for a limit order is usually set between the bid and ask. The risk with this is that it may not get filled. The seller has to want to fill the order at the price you set and they may not do that (read Bullish Bears Reviews from our members).

Difference Between a Market Order and Limit Order

Here we have a order entry screen from Interactive Brokers, here you can see its possible to select "MID" and get a limit order exactly in the middle. This is something I use often to get filled between the bid and ask quickly.

Knowing technical analysis is key when placing trades. Because you know the difference between market order and limit order you’ll know which would be the best way to trade especially when you look at what the indicators are telling you.

Learning how to draw support and resistance levels are major when purchasing a stock. If you're looking to learn more about swing trading then check out our swing trading strategies post.

Final Thoughts: Difference Between Market Order and Limit Order

Knowing the difference between market order and limit order helps you to trade smart. As a result, trading smart is what makes you successful at it.

If you’d like to learn more about investing in stocks then be sure to take our courses on our website and join our community, trade rooms, and subscribe to our watch lists and watch list videos showing you how we find support and resistance levels to find stocks to trade. 

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