Market and limit orders — two ways to say buy

What this is about

"Buy" is not one instruction. The two basic ways to place an order trade the same two things against each other every time: certainty of getting filled against certainty of the price you pay. You can have either one guaranteed. Never both.

The two orders

A market order says: fill me now, at whatever the price is. You will almost certainly get the shares. The price you get is whatever the market shows at the moment your order arrives — which in a calm, heavily traded share is essentially the price you saw, and in a thin or fast-moving one can be meaningfully worse. That difference between the price you saw and the price you got is slippage, and a market order accepts it by definition.

A limit order says: fill me at this price or better, or not at all. Buy with a limit of 50 and you will never pay more than 50. What you give up is certainty of execution: if the share runs to 51 and keeps going, your order sits unfilled while the thing you wanted leaves without you. A limit order is a price guarantee, not a purchase.

The asymmetry is the whole lesson: a market order guarantees the fill and floats the price; a limit order pins the price and floats the fill.

When each fits

Neither is "the right one" — they fit different situations.

Market orders fit heavily traded shares in normal hours, where the spread is a cent or two and immediacy is worth more than the last hundredth of a percent.

Limit orders fit anything thin, anything fast, anything outside regular hours, and any situation where you have decided what the shares are worth to you. In a thinly traded share a market order is how you pay 3% over the last printed price and only find out afterwards.

Timing matters too. An order placed while the exchange is closed does not execute at the price on your screen — it waits for the open, and the open can be far from yesterday's close. A market order queued overnight is a blank cheque for the opening price.

A worked example

A share last traded at 50.00, and the order book shows sellers asking 50.05. Your market order for 100 shares fills at 50.05 — five cents of spread, paid instantly, invisible on the statement. Fair trade for certainty in a liquid name. Now the same order in a thin share: the first 40 shares fill at 50.05, the next 60 at 50.60, because that was the next offer in the book. Average price 50.38 — three-quarters of a percent above what your screen showed, and nothing malfunctioned. The book was simply shallow, and a market order takes the book as it finds it.

Run it again with a limit at 50.10: the 40 cheap shares fill, the expensive 60 never do, and you hold a partial position at a price you chose. Whether that is better depends entirely on what happens next — if the share runs, the limit saved you 30 units and cost you the position. That is not a flaw to engineer away. It is the trade you make every time you pick an order type, stated in numbers.

What this does not tell you

It does not tell you which to use. The honest answer depends on the share, the hour and your intent, and a rule like "always limit" fails exactly when markets are calmest and the market order was fine.

It does not make a limit order a bargain-hunting machine. A buy limit far below the price usually fills on the way to somewhere worse — you get filled because the news is bad. Execution is not a strategy.

It does not cover the exotic variants. Stop-limits, iceberg orders, fill-or-kill — real brokers offer menus of them. All are combinations of the same two promises, and none escapes the fill-versus-price trade.

Where to see this in the app

The order ticket on any chart offers market, limit and stop commands against live prices, on virtual money. Place a limit below the current price and watch it wait; place a market order while the exchange is closed and see it queue for the open — the same behaviours this lesson describes, with nothing at stake. The How a stop loss protects you lesson covers the third command on the ticket.