Quick definition An order to buy or sell immediately at the best available price on the opposite side of the book. Execution is guaranteed, but the final price is not known until the order has been filled. What it is A market order carries no price limit. It executes against resting limit orders on the opposite side of the book at whatever prices are available. If a buy market order arrives and the best ask is $50.50, the order fills at $50.50. If the volume at $50.50 is exhausted, the order continues to the next price level ($50.51, $50.52, etc.) until the full order is filled or the book runs out of resting orders. Why it matters Market orders provide certainty of execution. A trader who needs to buy or sell immediately uses a market order. The price is whatever the market demands. For large orders, market orders can result in significant slippage if the volume at the best price is thin. Market Order versus Limit Order A limit order specifies a price threshold and may not execute. A market order executes immediately at whatever price is available. Market orders sacrifice price certainty for execution certainty. Limit orders sacrifice execution certainty for price certainty. Practical example A trader holds 10,000 shares and wants to sell immediately. The current bid is $49.50. The trader submits a market order to sell 10,000 shares. The order fills at $49.50. If the volume at $49.50 is only 6,000 shares, the remaining 4,000 shares fill at the next best bid ($49.49, $49.48, etc.). Price impact Market orders move the market. Because they take liquidity from existing resting orders, they often incur slippage. The cost of execution is the difference between the mid price and the actual fill price. Execution under Regulation NMS Under Regulation NMS (in the United States), a market order must be routed to the venue with the best available price at the moment of submission. This rule protects traders from being filled at significantly worse prices when better prices are available elsewhere. See also - Limit order - Stop order - Immediate-or-cancel (IOC) - Trade-through
