Limit Order vs Market Order

Limit Order vs Market Order Explained

What is the better: limit order vs. market order? These are the two most popular order types when entering into a trade. We advocate using limit orders over market orders to secure entries and exits. Market orders give you an instant fill, but your fill price is not guaranteed. Limit orders lock in your fill price, but don’t guarantee you will get filled. They are safer, though.

  • Limit orders filled at a specific predefined limit price or better
  • Traders are in control of their fill price with limit orders
  • Market orders fill at the best available market price, so you aren’t in control of fill pricing
  • Limit orders control fill price, but traders may miss their entry price
  • Market orders get the quickest entry but not the best fill price

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 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. Control of the entry price means you can control getting a better position.

Remember that limits are set to fill at the price you want 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 will retest its support level of $2.54, so you set limits for that price.

Limit Order Example

Limit Order vs Market Order Example

This is a limit order example in the ThinkorSwim platform.

Missed Opportunities

Instead, it tests at $2.60, returns to resistance, and breaks out. It barely missed your limit buy, and you didn’t take advantage of the move. However, 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 will save you more often than not.

Sticking to your trading plan is always better than trying to have a home run trade every time. 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. 

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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, 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 volatile stock? You’re trying to get in and out as quickly as possible.

Low float stocks tend to have large bid/ask spreads. Markets don’t fill at the best prices, and you get 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.

Market Order Example

Market Order Example

This is an example of a market order in the ThinkorSwim platform.

Final Thoughts: Limit Order vs Market Order

Here at the Bullish Bears, we are big proponents of limit orders. Why wouldn’t we rather have a market order that fills fast? As stated earlier, we like the control the limit order gives us.

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

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

Greed and fear move stocks. Taking the emotion out of trading, like with limit orders, 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. Market orders get you faster fills, but controlling your entry and exit points makes for better trades.

It comes down to your trading preference. We’ve seen traders who want their orders to be filled quickly.

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

Frequently Asked Questions

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

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

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