Updated: Mar 14, 2024

Market Order vs. Limit Order: How to Invest Smarter with These Trade Orders

Learn the difference between market orders and limit order when it comes to executing stock trade orders, which could change the way that you invest.
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When you buy and sell stocks, you have a few different ways you can submit your order to your broker.

Many people don’t think about this step, but there are major differences between market orders and limit orders.


The type of order that you choose can affect the price you pay or the amount you receive in each transaction.

Used wisely, these different types of trade orders can affect your investment performance.

What is a Market Order?

A market order is the type of order most people think of when they think about buying and selling stocks.

Most brokerages use it as the default method for placing orders.

When you place a market order, you simply tell your broker how many shares you want to buy or sell. Your broker then executes the transaction at whatever the going price is (the market price).

But, in some cases, you might pay a little more.

Watch out:

If you place a very large order or want to buy an illiquid stock, there may not be enough shares to buy at the listed market price.

Your broker will continue to purchase shares at slightly higher prices until it buys all of the shares you requested.

If you’re selling many shares or an illiquid stock, the reverse could happen.

Your broker will sell as many shares as possible at the listed price and then start selling for slightly less until it sells all the shares you want sold.

The good news:

For most investors is that this is very rare unless you’re moving huge sums of money or a major event has caused the market to act in unusual ways.

When do market orders execute?

Market orders typically go through immediately.

If you place a market order outside the normal trading hours (9:30 AM to 4 PM Eastern time on business days), your broker will execute it at the start of the next trading day.

This can be risky because share prices can change significantly outside of trading hours, especially if something, such as natural disaster or a poor earnings call, shakes confidence in the business you want to buy or sell.


  • Simple – just decide how many shares to buy or sell
  • Executes quickly


  • Might pay more or receive less than expected
    • This risk is higher for less popularly traded shares

  • Risky to use outside trading hours

When to use a market order

Market orders are ideal for investors executing orders as quickly as possible -- often to make an investing move at a specific moment during the trading day.

You should avoid market orders if you need to guarantee the maximum amount that you’ll pay you’re the minimum you’ll earn in a transaction.

You also shouldn’t enter market orders outside normal trading hours as prices can change drastically.

What is a Limit Order?

With a limit order you set a limit on the amount you’re willing to pay for a share, or a minimum for how much you’d accept when selling a share.

For example, when placing a buy limit order, you can specify that you want to buy 100 shares at no more than $10 per share. Your broker will buy as many shares as it can, up to 100, for $10 or less each. If there are 100 shares available at $9 each, you’ll pay $900. If there’s 50 available at $9 and 50 available at $10, you’ll pay $950.  You know for certain that you won’t pay more than $1,000 to buy the shares.

Sell limit order

For a sell limit order, you can specify that you want to sell 50 shares at no less than $25 each. Your broker will sell as many shares as it can, up to 50, at the highest prices available, but won’t sell any shares for less than $25. You’ll get a minimum of $1,250 from the sale.

The danger of limit orders is that your broker may not be able to fill the order. There’s nothing stopping you from placing a buy limit order for a share of Amazon at a penny per share, but the odds of ever finding someone willing to sell shares in Amazon for that cheap is low.

Buy limit order

If your buy limit order is below the price anyone is asking for their shares or your sell limit order is above the price anyone is willing to pay, your broker won’t be able to fill the order and no transaction will occur.


  • Certainty – you’ll know the maximum you’ll pay or the minimum you’ll earn
  • Useful when placing orders outside normal trading hours


  • You might only buy or sell some of the shares you want, or you may not buy or sell any at all
  • Some brokerages may charge additional fees

When to Use a Limit Order

One common strategy for limit orders is to intentionally set buy orders below the current price and sell orders above the current price.

This means that you’ll automatically buy or sell shares when they reach your desired price, saving you time from watching the market.

Limits orders are also useful when you want to enter an order outside of normal trading hours or want to transact shares in an infrequently traded company.

What About Stop Orders?

A stop order resembles a combination of a limit order and a market order.

When you create a stop order, you set a trigger price. When shares reach that trigger price, the stop order automatically converts to a market order and your broker executes it.

One common type of stop order is the stop-loss order.

With a stop-loss order, you set a stop order to sell shares at a set price to limit your losses from investing in a company.

For example, if you buy 100 shares in company XYZ for $50, you might set a stop order to sell if the price hits $45. If the price never reaches $45, you’ll hang onto the shares. If the price falls to $45 or less, your broker will automatically sell all your shares at the best available price.

One danger is that if a major event causes shares to fall quickly, you could wind up selling your shares for far less than the value where you set your stop.

If the company experiences a scandal over the weekend and its shares open at $35 when trading resumes, you’ll immediately sell your shares for $10 below your stop value, meaning you’ll lose more than you expected.

Timing of Orders

When entering limit orders, you have a few options when setting their timing.

Day orders

Day orders are good only for the day where you place the order. If the order is not completely filled by the end of the trading day, your broker won’t continue filling the order the next day.

Good Til Canceled Orders

Good til canceled (GTC) orders persist across trading days. If your broker can’t fill your order because there aren’t enough (or any) willing buyers or sellers at your limit price, your broker will keep looking for opportunities to fulfill the order until you manually cancel it.

These orders are useful if you know you want to buy or sell shares in a company and have plenty of time to do so, but also want to make sure you get the right price.

There are also “good til specified” orders, which automatically cancel at a time you set when placing the order.

Immediate or Cancel Orders

Immediate or cancel orders (also known as fill or kill) execute immediately or not at all.

If there are not sufficient buyers or sellers to complete your entire order based on the limit price you set, the transaction will not go through.

For example, if you want to buy 1,000 shares in XYZ at no more than $20, and only 800 are available at $20 or less, you’ll buy no shares and the order will be canceled.

Tips to Keep in Mind

When placing orders, keep these tips in mind.

What happens during big price jumps?

Many things can cause huge price increases or decreases in a company’s shares, whether it be a natural disaster, press release, or scandal, large price changes happen.

During these events, market orders can be risky because share prices change rapidly, and you might pay more than you expect when buying or receive less than expect when selling. They also make stop orders dangerous because you might sell your shares at a price far below your stop value.

When trading in a volatile security, limit orders can help you limit uncertainty by setting a maximum that you’ll pay to buy or a minim you’ll accept to sell.

How do mutual fund orders work?

Mutual funds aren’t like stocks or Exchange Traded Funds (ETFs). When you buy or sell a mutual fund, the transaction executes at the end of the day after the market closes and the fund calculates its shares’ new value. That means that mutual fund investors don’t have to worry about choosing the correct order type.

Trade execution isn’t instant

Even with the internet and modern communication technology, executing a trade takes time.

You might submit a buy order for 1,000 shares of a commonly traded stock at $25 each.

By the time your trade reaches the market and executes, even if it takes fractions of a second, the price of a share could have increased or decreased by a few pennies or even a dollar.

Even with limit orders, execution takes time and you may see small differences in the price quoted by stock exchanges or your broker and the price used in your transaction.

However, with a limit order, you cannot pay more or receive less than you expect, which helps you maintain certainty when making a transaction.