The market order is the standard method for concluding a trade on the stock exchange. It is simple, fast and popular with investors. Here you can find out how to use market orders correctly and what you should pay attention to.
Market Order Definition
A market order is an instruction to a broker to execute a purchase or sale at the best current price. The transaction can be made with all exchange-traded products such as shares, ETFs, funds and more. There is no waiting for a specific price, so the trade is usually completed quickly.
Particularly in the case of shares in large companies or well-known ETFs, there are a large number of buyers and sellers available at any given time. In such cases, a market order is executed almost immediately and the price is usually very close to the current price on the stock exchange.
When the broker receives the instruction to execute a market order, all available offers are searched for the best price. The highest price is selected for sales and the lowest price for purchases and the transaction is concluded directly.
However, it can happen that even the best offer is still quite overpriced. A market order does not take this into account and is still executed. In practice, this can lead to you trading at slightly lower prices.
Market orders are the standard method for buying and selling. As we can sell or buy shares and the like quickly and easily here, no other variant is used more often than the market order. Limit orders are in second place, but are often associated with longer waiting times until execution.
Market orders are used for this purpose
A market order is ideal if large-cap shares, well-known ETFs or similar products are to be traded. As there are numerous buyers and sellers, a market order is usually executed immediately and achieves a good price, which usually corresponds to the current market value.
If, on the other hand, a rather unknown share or similar product with low liquidity is to be traded, a market order is unsuitable: Execution can take some time and the price can be rather disappointing. This is because market orders execute the desired trade at the next best price, even if this is not ideal. This can result in losses, especially for products with high volatility!
Market orders are particularly easy to use and are therefore especially popular with people who are just gaining their first experience. However, even professionals use a market order when a transaction needs to be completed quickly. As they are easy to use and are executed quickly, market orders are preset as standard with Captrader. However, you can of course also select market orders, limit orders, stop orders and others manually.
Example market order
You would like to purchase 300 shares in a company. These are currently being traded at a price of 20 euros per share. You place a market order for the purchase. Your broker now searches through all offers from people selling this share in search of the best price.
A seller offers 100 shares in the company for € 20.50. This is the cheapest price currently available. This is the lowest price currently available, so your broker strikes immediately and buys the 100 shares for you.
However, as you have placed a market order for 300 shares, your broker is now looking for the missing 200 securities. The next best offer is 21.50 euros. Not an ideal price, but as there is no cheaper alternative, your broker buys the remaining 200 shares for this price.
Your market order has been fulfilled and you have the desired 300 shares in your securities account. You have paid a total of €6,350 for this: 100 shares at €20.50 each plus 200 shares at €21.50 each.