What is a market order?
A market order is a buy or sell order to be executed immediately at current market prices. As long as there are willing sellers and buyers, market orders are filled. Market orders are therefore used when certainty of execution is a priority over price of execution.
A market order is the simplest of the order types. This order type does not allow any control over the price received. The order is filled at the best price available at the relevant time. In fast-moving markets, the price paid or received may be quite different from the last price quoted before the order was entered.
A market order for a large number of shares may be split across multiple participants on the other side of the transaction, resulting in different prices for some of the shares.
A limit order is an order to buy a security at no more, or sell at no less, than a specific price. This gives the trader control over the price at which the trade is executed; however the order may never be executed ("filled").Limit orders are used when the trader wishes to control price rather than certainty of execution.
A buy limit order can only be executed at the limit price or lower. For example, if an investor wants to buy a stock, but doesn't want to pay more than $20 for it, the investor can place a limit order to buy the stock at $20 "or less". By entering a limit order rather than a market order, the investor will not buy the stock at a higher price, but, may not get the stock at all.
A sell limit order is analogous; it can only be executed at the limit price or higher.
Both buy and sell orders can be additionally constrained. Two of the most common additional constraints are Fill Or Kill (FOK) and All Or None (AON). FOK orders are either filled completely on the first attempt or canceled outright, while AON orders stipulate that the order must be completely filled or not filled at all (but still held on the order book for later execution).
A day order (the most common) is good only for one day. It is in force from when it is entered to the end of regular trading on the same day. A day order is assumed unless another type is specified.
A good-till-cancelled order requires a specific cancelling order. It can persist indefinitely (although brokers may set some limit, for example, 90 days).
Most markets have single-price auctions at the beginning ("open") and the end ("close") of regular trading. An order may be specified on the close or on the open, then it is entered in an auction but has no effect otherwise. There is often some deadline, for example, orders must be in 20 minutes before the auction. They are single-price because all orders, if they transact at all, transact at the same price, the open price and the close price respectively.
Combined with price instructions, this gives market on close (MOC), market on open (MOO), limit on close (LOC), and limit on open (LOO). For example, a market-on-open order is guaranteed to get the open price, whatever that is. A buy limit-on-open order is filled if the open price is lower, not filled if the open price is higher, and may or may not be filled if the open price is the same.
Fill-or-kill orders are usually limit orders that must be executed or cancelled immediately.
A conditional order is any order other than a limit order which is executed only when a specific condition is satisfied.
A stop order (also stop loss order) is an order to buy (or sell) a security once the price of the security has climbed above (or dropped below) a specified stop price. When the specified stop price is reached, the stop order is entered as a market order (no limit).
Once the stop price is reached, the stop order becomes a market order. In a fast-moving market, or if there is insufficient liquidity available at the stop price, the price at which the trade is executed may be much different from the stop price. The use of stop orders is much more frequent for stocks, and futures, that trade on an exchange than in the over-the-counter (OTC) market.
