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Market vs limit order

It’s a chill Friday morning. You asked your brother to get you some fresh meat from the butcher’s market. There are two scenarios in this case: you can either tell him to buy 5 kilos of meat at any given price, OR buy 5 kilos of meat at a specific price. 

The same goes when placing an order in the stock market. I’m not kidding. There are two types of orders: market order and limit order. Let’s dive right in.

Market Order: Immediacy over Price

Market orders put immediacy over price, which means that your order is placed right away regardless of the stock’s price. It is instantly executed at the best available market price. Investors usually place market orders when they want to buy or sell a stock instantly.

Let’s take an example. You wish to buy 200 stocks immediately. People who are selling this stock were asking (aka asks) for EGP 20, and others wanted to buy it (aka bids) for EGP 18. Your friend, Atef, was selling 100 of this stock for the asking price (EGP 20). So, if you have placed a market order for 200 stocks, half of your order will be executed instantly for EGP 20. What about the rest? The other half of the stocks will be bought at the market price. It could be as high as EGP 25 or as low as EGP 18. It all depends on the market. In other words, you don’t have to necessarily buy the 200 stocks with the same price, if it’s a market order. 

As the order is executed at the market price, the market should be open, right? Nope, not necessarily. You can place a market order outside market hours. Yet, it will be executed at the market’s open price – which is the price at which the stock will be bought or sold upon the opening of the trading day. 

It’s important to point out that you can’t cancel a market order, since it gets executed immediately. 

Limit Order: Price over Immediacy

Limit orders put price over immediacy. In other words, you set a limit on the price you’re willing to pay or accept for a given stock. It’s like an instruction to buy or sell a stock only at a specific price.

Buy limit orders

Let’s say that you wish to buy a stock for EGP 10, so you place a limit order with your desired price. In other words, you’re instructing the system to execute your order at a maximum price (or less). Yet, the current market price for the stock is EGP 15. Hence, the order will not get executed unless the price falls off to EGP 10 or less. Then and only then, your buy order will be executed.

Sell limit orders

Let’s take the same example but for selling. Imagine that you wish to sell a stock for EGP 20, so you instructed the system to execute your order at a minimum price of EGP 20 or more (aka you placed a limit order). So, your order will only get executed when an investor is willing to buy your stock for EGP 20 as a minimum.

Yet, what if the market didn’t reach your desired price? The rule is simple. If the market doesn’t align with your limit buy or sell price, then your order will not be executed. 

Will it be pending forever? Nope, not really. When you place a buy or sell limit order, you have three options: 

Option #1: Good till cancel 

Good till cancel (GTC) means that in case your placed order didn’t get executed, it will remain active until you cancel it.  

Option #2: Good till day 

Good till day means that your order will be active for one day, or to be more specific for one trading session unless it has already been cancelled or executed. 

Option #3: Good till date 

This simply means that your order will remain active until a specific date that you determine in advance. 

Unlike market orders, limit price orders can be canceled at any given moment. 

 

Wrap-up

Market Order Limit Order
Meaning Orders are executed at the best available price Orders are executed when your desired price is met
When Can be placed during/outside market hours Can be placed during/outside market hours
Cancelation Can NOT be canceled Can be canceled

This information is for educational purposes only and is not a recommendation or a solicitation to invest. The value of investments can go up and down and involve risk. Thndr does not provide investment advice and individual investors should make their own decisions based on their research or seek independent advice. Thndr is the trading name of Thndr Securities Brokerage which is authorized and regulated by the Financial Regulatory Authority (FRA). Registered in Egypt (no. 804).