Market Order vs Limit Order
5paisa Research Team
Last Updated: 27 Jun, 2024 05:53 PM IST
Content
- What is Market Order?
- How Does a Market Order Work?
- What Should You Know Before Placing a Market Order?
- What is Limit Order?
- How Does a Limit Order Work?
- What Should You Know Before Placing a Limit Order?
- Difference Between a Market Order and a Limit Order
- Market Order vs Limit Order: Which One Should You Choose
- Conclusion
In today's fast-paced financial markets, investors and traders have various order types to choose from when buying or selling securities. Two commonly used order types are market orders and limit orders.
A market order is an instruction to buy or sell a security at the best available price in the market. It provides certainty of execution, as the trade is executed immediately at the prevailing market price. Market orders are ideal when quick execution is a priority, but they may not guarantee a specific price due to potential price fluctuations.
On the other hand, a limit order allows investors to specify the maximum price they are willing to pay when buying or the minimum price they expect to receive when selling. The order is executed only if the market reaches or surpasses the specified price. While limit orders offer price control, there is no guarantee of execution if the market does not reach the specified price.
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Frequently Asked Questions
A limit order and a market order can have different execution prices. In some cases, a limit order may result in a lower execution price than a market order, but it depends on market conditions and the specified limit price.
The superiority of a market order or a limit order depends on individual preferences and trading goals. Market orders prioritize speed, while limit orders provide price control.
You should use a limit order when you have a specific price target in mind or want to control the execution price of your trade, prioritizing price over immediate execution.
A stop order is an instruction to buy or sell a security once it reaches a specified price, known as the stop price. It is commonly used to limit losses or initiate trades at specific price levels.
No, a stop-loss order and a limit order are different. A stop-loss order is triggered when the price reaches a specified level to limit losses, while a limit order sets a specific price for execution.
Limit orders are handled by brokers and trading platforms. When you place a limit order, it is submitted to the market through your broker, who will execute the order if the specified price is reached or surpassed.
Limit orders do not automatically sell. A limit order remains in effect until the specified price is reached or surpassed. Once the market reaches or surpasses the specified price, the limit order becomes active, and the broker or trading platform executes the sell order at or better than the specified price.