Market Order vs. Limit Order Stocks

Investors who buy and sell stocks need to understand the workings of the markets and the types of orders which actually create trades. Stocks do not have fixed prices. A "hot" stock with a lot of potential buyers will increase in price. Stock of a company in decline or financial trouble will drop. The type of order can affect the price a buyer pays or a seller gets.

At the Market

A market order tells a broker to buy or sell a stock at the best available price. That may be higher or lower than the "closing" price reported at the end of a trading day or even the last posted price on a stock reporting service. Orders to buy and sell are matched, on an exchange trading floor or an electronic market and the price paid on a market order depends on that match.

Price Limit

A limit order sets a fixed price to buy or sell. If the price of a stock does not reach that price, the order won't be filled. It does not guarantee that a stock will be bought or sold at that price. It simply establishes the criteria for a broker to complete a trade with an order. Large limit orders may be filled over several days if it takes many trades to complete the order.

Stop Limit

Another type of limit is the stop order. This sets a floor or ceiling for a market order to be issued. It's a defensive measure to sell if the price drops below a certain level or to guarantee a profit if it rises. A stop order is converted to a market order once the stock reaches the designated price. However, once a market order is issued, there is no guarantee it will execute at the designated price, if subsequent trades have sent the price up or down.

Time Limits

Market or limit stock orders can be placed as day orders, good until cancelled (GTC) or immediate or cancel (IOC). Day orders are good only for the day on which they are placed. GTC orders are good until the investor cancels them. IOC orders must be executed at once or they are cancelled automatically.

About the Author

Bob Haring has been a news writer and editor for more than 50 years, mostly with the Associated Press and then as executive editor of the Tulsa, Okla. "World." Since retiring he has written freelance stories and a weekly computer security column. Haring holds a Bachelor of Journalism from the University of Missouri.

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