The National Directory of Certified Public Accountants

Ask A CPA - Investments & Financial Planning

What Is The Difference Between Market And Limit Orders In The Stock Market ?

The two basic types of orders that you can place to buy or sell a stock are known as Market Orders and Limit Orders. A Market Order must be executed at the prevailing market price when the order reaches the market, even if the market price has moved significantly since the order was placed. The price you receive depends on market conditions at the specific time of execution. A Limit Order is an order in which you set a maximum price you are willing to pay to buy a security, or the minimum price you are willing to receive to sell a security. By placing a limit Order, you can take precautions that your order will not be executed above the limit for a buy order or below the limit for a sell order. By doing so, you take the risk that the order will not be executed at all if the order cannot be executed within the limit. Market orders provide an execution at the current market price. During volatile trading conditions, Market Orders carry the risk that the execution price you actually obtain may be substantially different from the quoted price at the time your order is placed.

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