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Let’s talk market orders.
If you want to buy/sell a stock, a market order is the most common stock order type people use.
It’s the simplest, fastest, most reliable way to trade a stock. But it comes with some risks. More on that in a bit though. Let’s focus on the positive to start.
A market order is a way to buy/sell a stock. It’s a request you put in to your broker or through your online brokerage account. It tells them that you want to buy/sell a stock, how many shares you want to buy/sell and that you want to buy/sell it immediately.
Basically, if you place a market order for a stock, your order will be executed ASAP (assuming the market is open when you place your order!).
When there’s a stock that you just have to buy or sell and you’ve got FOMO about not making the trade, a market order’s just the ticket for you.
Now market orders aren’t all sunshine and unicorns. There’s a drawback to using them.
Cuz while they do pretty much guarantee your order will be executed, they do not guarantee the price at which your order will be executed.
This can cause a nasty surprise for an investor.
Say you’re looking to sell a stock you own and the last price you see quoted was $50 a share. If you use a market order, the actual price you end up getting when you sell could be somewhat lower or higher than $50 a share.
For stocks that trade in high volumes each day (this includes ETFs), this usually isn’t a big deal. You may sell for a little more or less than $50 a share, but it probably won’t be more than a $0.50 per share difference or so.
However, if you’re trading more lightly traded stocks, you could get screwed by a market order. With a stock like this, it may take longer to find a buyer for your shares. And, in that time, the stock’s subject to much larger swings in price. Which means you could be in for quite the surprise when you see the price you actually sold for.
So if you’re looking to buy/sell shares of the Apples, General Electrics and Googles of the world, a market order is pretty safe.
But if you trade much smaller companies, you’re better off using a type of stock order where you have more control over the price you get.
What you gain in ease and speed with a market order, you lose in control over price. Because market orders will be filled at the price the market dictates. So if you wanna control a specific price to buy/sell at, you’ll want to look at limit or stop orders.