Limit orders (or "limit orders") and market orders (or "market orders") are two types of order commonly used to buy or sell assets on the financial markets. Each has its own characteristics and uses. Here are the main differences between these two types of order:
- Market Orders:
- Definition: A market order is an order to buy or sell an asset at the best price available on the market at the time the order is placed.
- Price: With a market order, you don't specify a specific price at which the asset should be bought or sold. You accept the current market price.
- Execution: Market orders are usually executed immediately, provided there are counterparties available. There is a risk of "slippage" if the market moves quickly, i.e. the actual execution could be at a price slightly different from that expected at the time the order was placed.
- Limit Orders:
- Definition: A limit order is an order to buy or sell an asset at a specific price or better.
- Price: With a limit order, you define the maximum price you are willing to pay as a buyer, or the minimum price you are willing to accept as a seller.
- Execution: A limit order is only executed when the market reaches the specified price or a better price. This means that there is no guarantee that the limit order will be executed, especially if the market price never touches the limit price. However, if the order is filled, it will be at the specified price or a better price.
In short, while a market order seeks immediate execution at the best available price, a limit order sets a specific price for execution and waits for the market to reach that price. The choice between the two depends on the trader's priorities: if speed of execution is most important, a market order might be preferable; if obtaining a specific price is essential, then a limit order would be appropriate.
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