What Is a Market Order?
A market order is an instruction to buy or sell a security immediately at the best available price in the market at the moment the order reaches the exchange. There is no price condition attached to a market order — it simply says 'execute now, at whatever price is available.'
Market orders are the simplest and fastest order type. They almost always fill immediately during regular trading hours for liquid securities. The trade-off is that you give up control over the execution price. You know you will trade; you do not know exactly what price you will pay or receive.
For large, highly liquid stocks — for example, Apple, Microsoft, or S&P 500 ETFs — the bid-ask spread is typically very tight (often a single cent), and a market order will execute very close to the last traded price. For smaller or less liquid securities, the spread can be much wider, and a market order may execute significantly above or below the price you saw on screen.
What Is a Limit Order?
A limit order is an instruction to buy or sell a security only at a specified price or better. A buy limit order will only execute at the limit price or lower. A sell limit order will only execute at the limit price or higher. If the market never reaches the limit price, the order will not fill.
For example, if a stock is currently trading at $52 and you place a buy limit order at $50, your order sits in the order book and waits. If the price falls to $50 or below, your order may fill. If the price continues rising, your order will not fill — you will not buy the stock at $52 or higher regardless of what the market does.
The key trade-off with limit orders is the opposite of market orders: you gain price certainty but lose execution certainty. You know what price you will pay if you trade, but you do not know whether you will trade at all.
The Bid-Ask Spread and Why It Matters
Every security has two prices at any given moment: the bid (the highest price a buyer is currently willing to pay) and the ask (the lowest price a seller is currently willing to accept). The difference between them is called the spread.
When you place a market buy order, you pay the ask price — the seller's price. When you place a market sell order, you receive the bid price — the buyer's price. The spread is effectively an immediate cost you incur every time you trade with a market order.
For major US stocks during regular trading hours, spreads are typically 1–2 cents on a $50 stock — negligible for most purposes. For less liquid stocks, ETFs traded at low volume, or any security during pre-market or after-hours sessions, spreads can widen dramatically to $0.25, $1.00, or more. A market order in these conditions can result in execution prices significantly worse than the last traded price.
Slippage: When Market Orders Cost More Than Expected
Slippage refers to the difference between the price you expected to pay (or receive) and the price at which your order actually executed. Slippage occurs primarily with market orders, and in several common situations.
During fast-moving markets — for example, immediately after a major earnings announcement or economic data release — prices can move several percent in seconds. A market order submitted during such a move may execute at a price far from where the market was when you placed the order.
Large orders in thinly traded securities can also cause significant slippage. If you want to buy 10,000 shares of a stock where only 500 shares are available at the best ask, your market order will consume those 500 shares and then move to the next available price, and so on, until the full 10,000 shares are filled. Each successive tranche may be at a worse price than the last. This effect is called market impact.
Limit orders eliminate slippage by definition — you set the maximum price you will pay (for a buy) or the minimum price you will accept (for a sell), and the order will not execute outside those bounds.
Good Till Cancelled (GTC) vs Day Orders
Limit orders can be specified with different time-in-force conditions. The two most common are Day orders and Good Till Cancelled (GTC) orders.
A Day order expires at the end of the current trading session if it has not filled. If the limit price was never reached during the trading day, the order simply cancels and does not carry over to the next day.
A Good Till Cancelled order remains active across multiple trading sessions until it either fills or you manually cancel it. Most brokers impose a maximum duration on GTC orders (commonly 30, 60, or 90 days), after which they expire automatically.
GTC orders are useful when you want to buy a stock at a specific price but are not sure when (or whether) the market will reach that level. However, they require attention — market conditions, company fundamentals, and your own circumstances can all change over the weeks a GTC order remains open.
When Each Order Type Is Typically Used
Market orders are commonly used in situations where speed of execution matters more than price precision — for example, exiting a position quickly in response to unexpected news, or entering a highly liquid security (such as an index ETF) where the spread is negligible and the price is unlikely to move significantly between order placement and execution.
Limit orders are commonly used when price certainty matters — when a trader has identified a specific entry price they consider appropriate, when trading in pre-market or after-hours sessions where spreads are wider, when trading less liquid securities, or when submitting an order that will remain open for an extended period.
Many experienced traders use limit orders as their default for entries, and reserve market orders for situations where they need to exit a position immediately and the cost of slippage is acceptable given the urgency.
Limit Orders in Pre-Market and After-Hours Sessions
US exchanges allow trading before and after regular hours through Electronic Communication Networks (ECNs). Pre-market trading runs approximately 4:00 AM to 9:30 AM ET; after-hours trading runs approximately 4:00 PM to 8:00 PM ET.
Liquidity in extended-hours sessions is dramatically lower than during regular hours. Bid-ask spreads on even well-known stocks can widen to $0.50, $1.00, or more. Market orders in these sessions can result in executions far from the expected price.
Most brokers restrict order types available in extended-hours sessions. Many allow only limit orders during pre-market and after-hours trading, specifically because the liquidity conditions make market orders particularly unpredictable.
This guide is educational only and does not constitute financial advice. All examples are hypothetical and illustrative. Trading and investing involve substantial risk. Always conduct your own research and due diligence before making any trading decisions.