Market Orders
No price preference, fill it now. Submit a market order yourself and watch it "eat" through the asks level by level.
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Text version · Stock Trading: Next Steps, lesson 2: “Market Orders”
No price preference, fill it now. Submit a market order yourself and watch it "eat" through the asks level by level.
Market order = I want it now
A market order sets no price; the matching engine fills it straight against the best orders on the other side: buys eat the asks, sells eat the bids.
A big order pushes the price away
When one level doesn't have enough, the order keeps eating into the next, pricier level. The final average fill is worse than the best price you saw: that's slippage.
When is a market order a good idea?
When your order is small relative to the book and "getting filled matters more than the price", a market order is easiest. At the open, around big news, or on thinly traded stocks the book is thin and liquidity is poor, so a market order can fill at an unexpected price.
Key takeaways
- A market order guarantees an immediate fill, but not the fill price.
- A market buy fills from the lowest ask upward, level by level; a market sell fills from the highest bid downward.
- The bigger the order and the thinner the book, the more levels it eats and the further the average fill drifts from the best price (slippage).
Try it yourself
You can do these exercises in this lesson's interactive simulation:
- Submit the default market buy for 1,200 shares and step through how many ask levels it eats. In the last frame's "What does this mean?", how much higher is the average price than the original best ask?
- Set "Quantity" to 300 shares and submit: how many levels did it eat this time? Is there still noticeable slippage?
- Raise the quantity to 2,000 shares and submit: how far is the price pushed up, and how much extra did you pay in total?
- Switch to "Sell" and submit a market sell: which level does it start filling at? How much lower is the average price than the highest bid?
Quiz and explanations
- 1. A very large market buy order usually makes the last traded price…
- Answer: Rise.It eats the asks level by level going up, so the price climbs as it fills.
- 2. What's the biggest advantage of a market order?
- Answer: A guaranteed immediate fill.The trade-off of a market order is price uncertainty.
- 3. The asks show 300 shares at $10.00 and 200 shares at $10.01. You submit a 500-share market buy. What's your average fill price?
- Answer: $10.004.(300 × $10.00 + 200 × $10.01) ÷ 500 = ($3,000 + $2,002) ÷ 500 = $10.004.
Terms in this lesson
- Ask: The price sellers are asking for. When you buy, you trade at the Ask.
- Bid: The price buyers are willing to pay. When you sell, you trade at the Bid.
- fill (Fill): A buy order and a sell order matching at the same price, so the trade actually happens.
- limit order (Limit Order): An order that only fills at your price or better: the price is guaranteed, the fill isn't.
- liquidity (Liquidity): How many orders are waiting near a price; the deeper the book, the harder it is to move the price.
- market order (Market Order): An order that fills right away at whatever price is available: the fill is guaranteed, the price isn't.
- order book (Order Book): All the buy and sell orders that haven't filled yet, lined up by price.
- slippage (Slippage): The difference between the price you expected and your actual average fill, which happens when a large market order eats through several price levels.