Order type market
Family II · Orders
Not to be confused with order type limit.
Market order is an order type that prioritises execution over price, filling at whatever the market offers at the moment it reaches the venue. It is the most direct way to enter or exit a position, but the final fill price is not guaranteed and may differ from the last quoted price.
How a market order executes
When a market order arrives at an exchange or broker, it is matched against the best available resting orders on the opposite side of the book. If the order is larger than the quantity available at the best price, it continues to consume successive price levels until it is filled. This process is known as walking the book.
The price at which a market order fills is therefore determined by the depth and liquidity of the order book at that instant. In a liquid market with tight spreads, the fill is usually close to the quoted price. In a thin or fast-moving market, the difference can be substantial.
Worked example
Suppose a trader submits a market buy order for 1,000 shares. The order book shows the following offers:
- 200 shares at 10.00
- 300 shares at 10.02
- 500 shares at 10.05
The order fills as follows:
The average fill price is 10.031, which is higher than the best offer of 10.00. This difference is called slippage.
Slippage and execution risk
Slippage is the difference between the expected price of a market order and the actual fill price. It can be positive or negative depending on market conditions and order size. Factors that increase slippage include low liquidity, high volatility, and large order size relative to available depth.
Market orders carry no price protection. In extreme cases, such as a flash crash or a trading halt, a market order may execute at a price far from the last traded price. Traders who require price certainty typically use a limit order instead.
Common uses
Market orders are often used when the priority is immediate execution. Examples include entering or exiting a position in a highly liquid instrument, or when a strategy requires a fast response to a signal. They are also common in stop orders, where a stop price triggers a market order once reached.
Because the fill price is uncertain, market orders are less suitable for illiquid instruments or for large orders that could move the price significantly. In such cases, traders may split the order into smaller parts or use other order types.
Often confused with
- order type limit
- A limit order is an instruction to buy or sell a financial instrument only at a specified price or better, so it may remain unfilled if the market never reaches that price.