A market order is an order to buy or sell that is executed at the best available price. This type of order will usually be executed immediately - as long as there are willing sellers or buyers on the other end of the transaction. Market orders placed after trading hours will be executed at the best available price when the market reopens. Because so much can happen outside of normal trading hours (before and after the market), this price may be higher or lower than when you entered your market order. There are also times when stocks are halted or trading is suspended, sometimes due to pending news, which can delay the execution of your market order.
A limit order, as the term implies, sets a price and time limit for buying or selling a stock. You can set a maximum buy price for a buy order, or a minimum sell price for a sell order. Your order will only be shipped at or better than the price you specify. You can also select an "expire" date, at which time the order will expire, unless it is already filled or you decide to cancel it.
Suppose you want to buy shares of the company ABC, which is trading at $10.50 on November 1. You may be interested in the stock, but you buy it at a low price and are willing to wait a month to see if it trades at $10.50. The level you are willing to pay on November 1st. A limit order will allow you to set the maximum price you are willing to pay and choose a cut-off date up to 90 days in the future.
- For example, for shares of ABC Company that you are interested in, you can set a limit order to buy at $10 until November 30th.
Now let's say you already own shares of ABC Company (which you bought for $10) and want to sell them when they reach $12. You can set your limit price to $12 and choose your "good-through" date, meaning that if ABC gets to $12 or more within that time frame, your order will be placed. . . . will be filled as long as there are enough buyers or sellers at the other end. To give and take
Pro:
Market orders can usually be expected to be filled quickly.
Con:
With market orders, it's important to keep in mind that the final price may be different than what you were expecting.
Pro:
You have better control over the price and can change it — as long as your order is filled — until the markets are closed on the day your order expires. Especially for OTC or thinly traded securities, limit orders provide more confidence in your fill price.
Con:
Execution of a limit order is less certain than a market order. There is a risk that the limit order will not be filled, or only partially filled. And, if you placed a limit order outside of market hours, your order may not be filled if the stock price opens above your limit buy price or falls below your sell limit.