More so than most industries, the financial industry is overflowing with its own jargon. They have special words to describe almost every single metric and situation. If you were to visit any stock on google finance, you would instantly be greeted with phrases like day range, year range, market cap, stock volume, P/E ratio, and dividend yield. All of these specialized words can make it confusing to know what’s going on. Today, we’re going to clear up the term “market order”.
This article will take a look at what a market order is in regards to the stock market, investing, and trading.
What is a market order?
A market order is defined as an order to buy or sell a stock at the market’s best available price. This essentially just means that your order will be placed as soon as your click the button. If you think that the stock is fairly priced then this is a perfectly good order to use.
However, there are a few things to take note of before executing a market order. First, a stock’s quote will usually include the highest bid price, the lowest ask price, as well as the last trade price.
If you are buying a stock that is not traded very often then there is a good chance that the last trade price might not be current.
The opposite is true for fast-moving stocks. If a stock is extremely volatile then the market price could be changing by the second. When a stock’s price is changing incredibly quickly, it could very well change from the time you click the button to the time that the order is executed.
In some scenarios, this could cause you to end up significantly over/underpaying for the stock.
For these types of scenarios, it’s better to pay attention to the bid/ask prices instead of the last trade price.
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Beware of when you place an order
Market orders are best placed when the stock market is open between 9:30am-4pm on weekdays. During this time, orders are flowing all day and stock price information is updating regularly. This means that if you place a market order during this time then you are likely to get the price you want (or very close to it).
If you place a market order when the market is closed then it will not execute until the next time that the market is opened. This can be a little risky because there is a lot of trading that goes on before the opening bell. There is also a lot of news that is announced over the weekend when the market is closed. If you’re not careful, this could end up hurting you.
For example, let’s say that you place a market order on a Friday afternoon after the market has closed. Then, over the weekend the company’s incredibly successful CEO announces that he’s leaving to go to a competitor. Before the market opens on Monday, people rush to sell the stock. This means that your market order will end up executing at a price much lower than you were expecting.
We hope that you’ve found this article valuable when it comes to learning what a market order means as it relates to stocks. If you are interested in learning more, please subscribe below to get alerted of new articles as we write them!