Market Order vs Limit Order

When you buy or sell shares and other investment assets through a broker you typically have two options: place a market order or limit order. Here we break down the difference between the two.

What is a Market Order?

When you place a market order, you are buying or selling shares at market price which is the price that the asset is currently being sold for. Placing a market order is only available when an exchange is open. For example, the normal trading hours for the ASX are Monday to Friday, 10am to 4pm (Sydney time). Outside these times you can place a limit order.

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What is a Limit Order?

A limit order allows investors to dictate the price they wish to buy or sell assets. For example, you may be interested in purchasing XYZ shares, but currently they are being sold for $10.15 per share. But you think that the price of XYZ shares will fall below $10. You can place a limit order for $9.99. When the shares hit that price or lower your broker will purchase them. The same can be done when you are looking to sell shares, you can decide to sell them only when the price reaches a certain amount or higher. Limit orders are available around the clock; the exchange does not need to be open to place a limit order.

How long do limit orders last?

Limit orders usually have an expiration date, some brokerages will allow you to place a limit order that expires in 24 hours, or 20 business days or 30 days – it depends on your broker. You can also cancel a limit order as long as the order hasn’t been filled yet.

What is the difference between a Market Order and Limit Order?

The key difference between the two is with a limit order you can buy or sell shares at a price you choose, whereas with a market order you buy or sell shares at the price dictated by the market. Another difference is with a market order you select the number of shares you want to buy or sell, and with a limit order it’s the price you want to buy or sell at. Also, a market order is only available when the market is open, compared to a limit order that can be placed at any time, but will not be filled until the market is open.

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Which is better: Market Order or Limit Order?

Whether trading at the market price or placing a limit order is better, completely depends on the investors and their current situation. The benefit of placing a limit order is that you don’t have to monitor your shares, your trades will continue on without you having to intervene. However, when you place a limit order there is no guarantee that the shares or assets will reach the price that you desire and you could miss out entirely. This is not the case ith a market order where you buy or sell assets right away. However, the downside to trading at market price is that there is always a chance that you could have bought or sold shares and other investment assets for a better price.

Before you invest

Before investing in anything you should consider your personal circumstances, tolerance for risk, investment goals and strategy. Also, bear in mind that past performance is not an indicator or future performance.

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