Types of Orders (Market vs Limit)
Understanding How to Place a Trade Correctly
Introduction
When buying or selling stocks, investors must choose the type of order they want to place.
An order type determines how and when your trade is executed.
The two most common order types are:
- Market Order
- Limit Order
Understanding the difference helps avoid costly mistakes.
What Is a Market Order?
A market order executes immediately at the best available current price.
It prioritizes speed, not price.
Example
If a stock is trading around $100 and you place a market order to buy, your order will execute instantly at the nearest available selling price.
Advantages of Market Orders
- Fast execution
- High probability of completion
- Simple for beginners
Risks of Market Orders
- Final price may differ slightly from expected
- In volatile markets, price can change quickly
- Slippage may occur
Market orders are best used when execution speed is more important than exact pricing.
What Is a Limit Order?
A limit order allows you to set a specific price at which you want to buy or sell a stock.
It prioritizes price control, not speed.
Example
If a stock is trading at $100 and you place a limit order to buy at $95:
- Your order will only execute if the price drops to $95 or lower.
Advantages of Limit Orders
- Greater price control
- Protects against sudden price spikes
- Useful in volatile markets
Risks of Limit Orders
- Order may not execute
- Price may never reach your limit
- Missed opportunities if market moves quickly
Limit orders are ideal for disciplined investors who want structured entry points.
Market vs Limit – Simple Comparison
| Market Order | Limit Order |
|---|---|
| Executes instantly | Executes only at chosen price |
| Focuses on speed | Focuses on price |
| Suitable for stable markets | Suitable for volatile markets |
| Higher risk of slippage | Risk of non-execution |
When Should Beginners Use Each?
- Use Market Orders for highly liquid, stable stocks.
- Use Limit Orders when entering at strategic price levels.
Avoid rushing trades without understanding the order type.
Final Thoughts
Choosing the correct order type improves discipline and reduces unnecessary risk.
Smart investing is not just about what you buy — but how you execute the trade.