Market Orders and Limit Orders

The difference between orders that trade immediately at the best available price and orders that trade only at a price you choose, and when to use each.

When you place an order to buy or sell shares, you choose what type of order it is. The type determines whether your trade happens immediately and at what price.

Market orders

A market order tells your broker to buy or sell immediately at the best price currently available. It almost always executes quickly, but you do not control the exact price. In fast-moving or thinly traded markets, the price you get can differ from the price you saw. This difference is called slippage.

Limit orders

A limit order sets the maximum price you will pay to buy, or the minimum price you will accept to sell. A buy limit order at 100 will only execute at 100 or lower. Limit orders give price control, but may never execute if the market does not reach your price.

Stop-loss orders

A stop-loss order becomes an order to sell once the price falls to a specified level, aiming to limit losses. For example, an investor who bought at 100 might set a stop at 90. If the price falls to 90, the order is triggered. In a sudden fall, however, the sale may happen well below 90, since it becomes a market order once triggered, unless it is a stop-limit order.

A thinly traded share

An investor wants 500 shares of a small company that rarely trades. The best ask is 50 rupees for 100 shares, then 52 for the next 200, then 55 for the rest. A market order for 500 shares would buy at all three prices, averaging well above 50. A limit order at 51 would buy only the first 100 shares and wait for more sellers at that price.

Which to use

Market orders suit large, heavily traded shares when speed matters more than a small price difference.
Limit orders suit less liquid shares, volatile markets, or when you have a specific price in mind.
Stop-loss orders can help manage risk, but traders should understand how they behave in sharp moves.

Orders outside trading hours

Orders placed when markets are closed may execute at the opening price, which can differ sharply from the previous close if news arrived overnight. Limit orders protect against unexpected opening prices.

Thinking a stop-loss guarantees your sale price

A stop-loss triggers a sale at the next available price once your level is reached. If prices gap down, for example after bad news overnight, the sale may happen far below your stop price.

Key takeaways

Market orders execute immediately at the best available price, with possible slippage.
Limit orders control price but may not execute.
Stop-loss orders help limit losses but do not guarantee the sale price.
Limit orders are useful for thinly traded shares and volatile markets.