Market Order

Definition of Market Order

Market order is an order to buy or sell an instrument immediately at the best available price in the market. It guarantees execution, but not the price.

Advantages of Market Order

  • Speed: Market orders execute quickly, ensuring your order is filled without delay.
  • Simplicity: Market orders are straightforward since you don’t need to enter a specific price.

Disadvantages of Market Order

  • Price Uncertainty: You can’t control the filled price.
  • Slippage due Market Volatility: Prices can change quickly, especially in volatile markets, and your order might be filled at a worse price.
  • Slippage due Low Liquidity: If there aren’t enough buyers or sellers at the price you want, your order may be filled at a worse price.

Example of Market Order

Buy Market Order: If you place a market order to buy 80 lots at $100, the order will be filled at the best available prices, which may vary depending on market liquidity.

If there are 80 lots available at $100, the entire order is filled at $100.

If only 50 lots are available at $100 and the next best price is $109, then:
– 50 lots get filled at $100.
– The remaining 30 lots get filled at $109 (or higher if necessary).
Sell Market Order: If you place a market order to sell 60 lots at $90, the order will be filled at the best available prices, which may vary depending on market liquidity.

If there are 60 lots available at $90, the entire order is filled at $90.

If only 40 lots are available at $90 and the next best price is $80, then:
– 40 lots get filled at $90.
– The remaining 20 lots get filled at $80 (or lower if necessary).

Quiz on Market Order

  1. What is a market order?
  • A) An order to buy or sell at a specific price or better.
  • B) An order to buy or sell immediately at the best available price.
  • C) An order to buy or sell after a set period of time

2. If you place a market order to buy 100 lots, what is guaranteed?

  • A) All 100 lots will be filled at same price.
  • B) Your order will be executed immediately at the best available price, depending on market liquidity.
  • C) The order will be delayed until the price matches your specific price.

3. When placing a market order to sell, what is the risk?

  • A) The order might not be executed at all.
  • B) The order might be executed partially.
  • C) The order will be sold at the best available price, but the filled price might be different due to market volatility.

4. Which of the following is an advantage of using a market order?

  • A) You have complete control over the execution price.
  • B) The order is executed immediately at the best available price.
  • C) The order is more likely to be executed at the price you specify.

5. Which of the following would be the most appropriate situation for using a market order?

  • A) When you want to control the price you pay.
  • B) When you want to make sure your order is filled immediately, regardless of price.
  • C) When the market price is moving quickly, and you want to ensure you get a specific price.

6. If current market price is at $100 and you place a market order to buy 90 lots, what will happen?

  • A) Your order will execute at $100, or you may experience slight price differences due to liquidity.
  • B) Your order will execute at $100 or lower.
  • C) Your order will not be executed at all.

7. How can a market order lead to “slippage”?

  • A) The price at which the order is filled may differ from the expected price due to rapid price movement or low liquidity.
  • B) The order might not be executed, leading to a loss.
  • C) The order will execute only when the price reaches a specific level.

8. If you want to sell immediately and don’t care about the exact price, which order type would you use?

  • A) Stop order.
  • B) Limit order.
  • C) Market order.

Answers

  1. B) An order to buy or sell immediately at the best available price.
  2. B) Your order will be executed immediately at the best available price, depending on market liquidity.
  3. C) The order will be sold at the best available price, but the filled price might be different due to market volatility.
  4. B) The order is executed immediately at the best available price.
  5. B) When you want to make sure your order is filled immediately, regardless of price.
  6. A) Your order will execute at $100, or you may experience slight price differences due to liquidity.
  7. A) The price at which the order is filled may differ from the expected price due to rapid price movement or low liquidity.
  8. C) Market order.

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