Introduction to Market Orders for Stock Investments - dummies

Introduction to Market Orders for Stock Investments

By Paul Mladjenovic

When you invest in stock, the simplest type of order is a market order — an order to buy or sell a stock at the market’s current best available price. Orders don’t get any more basic than that.

Here’s an example: Kowalski, Inc., is available at the market price of $10. When you call your broker and instruct her to buy 100 shares “at the market,” the broker implements the order for your account, and you pay $1,000 plus commission.

Brokers say “current best available price” because the stock’s price is constantly moving, and catching the best price can be a function of the broker’s ability to process the stock purchase. For very active stocks, the price change can happen within seconds.

It’s not unheard of to have three brokers simultaneously place orders for the same stock and get three different prices because of differences in the brokers’ capabilities. The difference may be pennies, but it’s a difference nonetheless. (Some computers are faster than others.)

The advantage of a market order is that the transaction is processed immediately, and you get your stock without worrying about whether it hits a particular price. For example, if you buy Kowalski, Inc., with a market order, you know that by the end of that phone call (or website visit), you’re assured of getting the stock.

The disadvantage of a market order is that you can’t control the price at which you purchase the stock. Whether you’re buying or selling your shares, you may not realize the exact price you expect (especially if you’re dealing with a volatile stock).

Market orders get finalized in the chronological order in which they’re placed. Your price may change because the orders ahead of you in line cause the stock price to rise or fall based on the latest news.