Lesson 2 of 5 · 6 min read
Order types: market & limit
How you place an order determines the price at which you buy. Market or limit — know the difference.
Market order
A market order is executed immediately at the best available price. Fast and certain, but you only know the exact price afterwards. With large or thinly traded shares the price can deviate slightly from what you saw.
Limit order
With a limit order you set a maximum price to buy (or a minimum price to sell). The order is only executed if the market reaches your price. You keep control over the price, but execution is not guaranteed.
When to use which?
For large, heavily traded shares (like Apple) a market order is usually fine. For smaller or more volatile shares a limit order gives protection against an unexpectedly bad price. Beginners who invest periodically often simply use market orders.
Remember this
- A market order executes immediately at the best available price, which you only know afterwards.
- A limit order gives control over the price, but execution is not guaranteed.
- Market suits large, busy shares; limit protects with smaller or more volatile shares.
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