What is a Market Order?

A market order is the easiest way to buy stocks. Market orders will simply tell your broker to buy or sell your stock at a price the stock is trading at. This is true regardless of the price of the actual stock.

Your broker still needs to match your buy order with someone else’s sell order. And when you place a simply order like this you are telling your broker to just buy the stock at whatever price they can get it at. Now realistically it will be around $51, but it might be $50.5 or it might be $52. It is whatever price they can find a buyer for.

The disadvantage of market orders is that you have no control of the price you get into a stock. If the stock gaps big, either up or down the price you get into a stock may be very far from the price you actually wanted to get into the position at.

Since there is so much liquidity in the market you don’t really need to worry about this too much during market hours because your order will be filled instantly at a price that you expect. But if you make the trade overnight you have to watch out for big gaps.

However those who use market orders just want to enter a stock at whatever price it is trading at. If you are truly believe the stock is heading up the possibility of getting in a few pennies from where you wanted to can be insignificant. After all, why step over dollars to save pennies?

Getting into to the stock that you believe will make a big move can be more important than worrying about what price you get filled at. If a stock is going up too fast you might never be able to wait for the right price to get into it, since you would miss the big move. But not if you just let your broker get you in at the next best price.This is the benefit a market order can give you.

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