Limit Order vs Market Order

  • January 23, 2019

Watch our video on a limit order vs market order and their differences when trading.

What Is a Limit Order and (vs) Market Order?

  1. Simple breakdown between a limit order and (vs) market order:
  2. Limit orders fill at a specific predefined limit price or better
  3. You are in control of your fill price with limits
  4. Market orders fill at the best available market price, so you aren't control of fill pricing
  5. Limits control fill but you may miss entry. Markets get you quickest entry but not the best fill price

Understanding different orders is important when trading the stock market. The video above explains the differences between them both and which one that we recommend using when trading. 

The goal of any trader is to have the advantage and turn that advantage into profit. As a result, knowing something as simple as the difference between a limit order vs market order helps.

You may be wondering how knowing order difference can help you as a trader but it does. In fact, every trader is looking for an edge. 

1. Edge

That edge helps you to be better than others. Trading isn't easy. It takes hard work and dedication. If you're in it to get rich quick, you're in for a big surprise.

Learning the difference between a limit order vs market order is going to give you an advantage over a trader who just wants to follow someone else's trades.

Little details can make a huge difference. In fact, that's something usually overlooked in trading as well as teaching new traders. Everyone pays attention to the big things, and they should.

However, it's the little details that can make a huge difference. That's why knowing the difference could give you an edge.

Limit Order vs Market Order

2. Definition: Differences Between Limit Order vs Market Order

Investopedia defines a limit order as an order placed with a brokerage to execute a buy or sell transaction at a set number of shares and at a specified limit price or better.

In other words, you're in complete control of limits from the number of shares you want to the price the order fills as. Having control of entry price means you can control getting a better position.

Remember that limits are set to fill at the price you're looking for or better. That means you could get an even better fill than what you expected.

However, that can mean that your trade doesn't get filled. For example, you think stock ABC is going to retest it's support level of $2.54 so you set limits for that price.

3. Missed Opportunities

Instead it tests at $2.60 then heads back up to resistance and breaks out. It barely missed your limit buy in and you didn't take advantage of the move. Although that doesn't need to be seen as a bad thing.

Yes it isn't fun when we see a missed opportunity. However, using proper risk management is going to save you more often than not.

Sticking to your trading plan is always better than trying to have a home run trade every time. In fact, greed usually blows up accounts instead of making them bigger.

Another thing limits do is limit the time an order is open. In other words, you can set the order to cancel if your price target isn't met within a certain amount of time. We show how to place orders live in our trading rooms. Check out the trading service that we offer.

How Does a Limit Order Work?

  1. A limit order works by placing a buy or sell order for a specific price or better
  2. Limit orders either fill quickly or they don't
  3. Limits can only be filled if the stocks price reaches limit price
  4. Sell limits can only be implemented if price is at limit or higher
  5. It's possible to miss an entry or an exit

Do Market Orders Get Filled Before Limit Orders?

  1. Market orders get filled before limit orders due to immediate price execution
  2. Limits may take time to execute due to price needing to reach limit
  3. Markets are more instant order flow, while limits can be delayed

1. Benefits of Limit Order vs Market Order

In a limit order vs market order what is a market order? Investopedia defines a market order as a request by an investor – usually made through a broker or brokerage service – to buy or sell a security at the best available price in the current market.

In other words, a markets fill quickly. This is the order that many traders use. They use it because it's efficient, quick and the most basic of all orders.

You're entering and exiting a trade as quickly as possible. That sounds great right? It can be for large cap stocks. However, markets don't mix well with low floats.

That might sound like an oxymoron. Why wouldn't a market order be good for a stock that's volatile? You're trying to get in and out as quickly as possible.

Low float stocks tend  to have large bid/ask spreads. As a result, markets don't fill at the the best prices and you end up getting an entry or exit you didn't want. 

Many brokers will have the buy/sell buttons for you to hit so you can execute market orders as quickly as possible. In fact, ThinkorSwim has them in their Active Trader section.

Take our thinkorswim tutorial to learn how to set them up. Looking to learn stock trading? Make sure to take our free trading courses.

limit order vs market order

2. Is One Better Than the Other?

Here at the Bullish Bears we are big proponents of a limits vs market order. The limit order, in our opinion, is the best way to trade.

You may be wondering why. Why wouldn't we rather have a market order that fills fast? As we stated earlier, we like the control the limits give us.

We can set the price to fill, sell and the amount of time to leave the order open. In fact, with a limit order you can add a stop loss as well.

What does that do? It takes the emotion out of trading. Trading is mostly emotion. That's what moves markets and that's what seasoned traders take advantage of.

Greed and fear move stocks. When you take the emotion out of trading, like with limits order, it forces you to stick to your plan.

You've heard the saying "plan your trade and trade your plan". Those are wise words. Many times when we veer off our trading plan, the trade blows up on us.

When we allow greed and fear to take over our trading, nothing good comes from that. Sure market orders get you faster fills but having control over your entry and exit points makes for better trades.

Open a practice account and try trading using a limit order vs market order. Track how well limits do against a market order. Then you can decide for yourself how you want to place your orders. Take our day trading course.

The Bottom Line on Limit Order vs Market Order

Limit order vs market order comes down to your trading preference. We've seen people in our trade rooms want their orders to fill as quickly as possible.

You may find you prefer speed to accuracy. It's all a matter of your style, how you trade as well as the type of stocks you trade. 

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