Market Order vs. Limit Order

Have you ever wondered about the difference between a market order vs. a limit order? In his recent webinar How to Spot Market Manipulation, Optic Trading President Adam Ryan broke explained the two order types in detail. He said that a market order guarantees you the fill, but not the price. On the other hand, a limit order guarantees you the price, but not the fill.

A market order will be filled at whatever price the market dictates at the moment when the order is filled. To illustrate this, Ryan imagined a situation where the price is at a certain point and you want to buy. With a market order, you can be confident that your order will be filled. However, you also need to be aware that, depending on how many orders are in the book, the price may change before your order gets filled. Therefore, you could wind up buying your contracts at a higher price than you were anticipating.

So why would you ever want to use a market order, if you aren’t going to get your price? One example is when utilizing a stop-loss. If you are aiming to exit the market at a predetermined loss, you would want to use a market order. Otherwise, your manageable loss may become much larger while you wait for the price to reach the level you want. Another reason to use a market order is in a situation where the market is breaking out and moving quickly. In this case, you would want to get in as fast as possible, in order to not get left behind.

While market orders guarantee your fill but not your price, limit orders work the opposite way. A limit order will only be filled when (and if) the market reaches your specified price. The benefit of this is obvious: you won’t find yourself making trades at prices you weren’t expecting. The downside is that, if the market never reaches the price you specified, your order will never be filled. Similarly, your order may only be partially filled, if price moves away from your specifications before your order has had a chance to fill completely.

In this short clip, Adam Ryan explains these two order types, and their pros and cons, in greater detail. If you are interested in learning more about price movement and how to be aware of it, be sure to check out Ryan’s full- length webinar.

If you enjoyed this clip, be sure to watch these other market-analysis webinars: Use Current and Past Price Action to Place Trades with Raffi Sosikian of Pinnacle Quant and Combine Price Action, Order Flow and Momentum with Rob Mitchell of IndicatorSmart

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