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Textbook
Introduction
1. Common stock
2. Preferred stock
3. Bond fundamentals
4. Corporate debt
5. Municipal debt
6. US government debt
7. Investment companies
8. Alternative pooled investments
9. Options
10. Taxes
11. The primary market
12. The secondary market
12.1 Roles, transactions, & spreads
12.2 The markets
12.3 Securities Exchange Act of 1934
12.4 Customer orders
12.4.1 Market orders
12.4.2 Limit orders
12.4.3 Stop orders
12.4.4 Stop limit orders
12.4.5 Order types summary
12.4.6 Additional specifications
12.4.7 Rules
13. Brokerage accounts
14. Retirement & education plans
15. Rules & ethics
16. Suitability
Wrapping up
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12.4.1 Market orders
Achievable Series 7
12. The secondary market
12.4. Customer orders

Market orders

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Investors must specify how a trade should be executed when they place an order to buy or sell a security. This unit covers four order types:

  • Market orders
  • Limit orders
  • Stop orders
  • Stop limit orders

Market orders are appropriate when the main goal is immediate execution. A market order doesn’t specify a price; it executes at the next available market price. In practice, market orders often fill within a few seconds of being placed.

When you place a market order, execution is guaranteed (the trade will happen), but the price is not guaranteed. That price uncertainty is the main risk of using a market order - especially if you place it when the market is closed.

Assume an investor places a market order to buy stock in a pharmaceutical company after the market closes, when the stock is trading at $50. A few hours later, a news article reports that the company has cured cancer, and the stock price jumps to open at $200 the next day. If the investor’s order is still active at the market open, they’ll buy at around $200 - four times what they likely expected. While a dramatic jump like this is rare, overnight price changes are common.

The risk can also work against a seller. Using the same $50 stock, a customer who places a market order to sell after the market closes could end up selling at a much lower price if the stock drops overnight. For that reason, investors generally avoid placing market orders overnight.

As with the other order types covered in this unit - limit, stop, and stop limit - customers placing a market order must also specify how long the order remains in effect: orders are either day orders or good-til-canceled (GTC) orders:

  • Day orders are canceled at the end of the trading day if they haven’t executed.
  • GTC orders remain active until the customer cancels them, which could be days, weeks, or months.

Because market orders are designed to execute immediately, broker-dealers automatically enter market orders as day orders by default, unless the customer specifies GTC.

Here’s a video that dives further into market orders:

Order Types Overview

  • Four main types: market, limit, stop, stop limit
  • Investor must specify execution method when placing a trade

Market Orders

  • No price specified; executes at next available market price
  • Typically fills within seconds of placement
  • Execution guaranteed, price NOT guaranteed
    • Main risk: price uncertainty, especially overnight

Market Order Price Risk

  • Overnight news can cause big price swings before market opens
  • Buy example: stock at $50 after close, news causes open at $200 — order fills near $200
  • Sell example: overnight drop causes execution at much lower price than expected
  • Investors generally avoid placing market orders when market is closed

Order Duration: Day vs. GTC

  • Day orders: cancel automatically at end of trading day if unfilled
  • Good-til-canceled (GTC) orders: stay active until customer cancels (days/weeks/months)
  • Applies to all order types (market, limit, stop, stop limit)
  • Broker-dealers default market orders to day orders unless customer requests GTC

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Next  | 12.4.2 Limit orders
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Market orders

Investors must specify how a trade should be executed when they place an order to buy or sell a security. This unit covers four order types:

  • Market orders
  • Limit orders
  • Stop orders
  • Stop limit orders

Market orders are appropriate when the main goal is immediate execution. A market order doesn’t specify a price; it executes at the next available market price. In practice, market orders often fill within a few seconds of being placed.

When you place a market order, execution is guaranteed (the trade will happen), but the price is not guaranteed. That price uncertainty is the main risk of using a market order - especially if you place it when the market is closed.

Assume an investor places a market order to buy stock in a pharmaceutical company after the market closes, when the stock is trading at $50. A few hours later, a news article reports that the company has cured cancer, and the stock price jumps to open at $200 the next day. If the investor’s order is still active at the market open, they’ll buy at around $200 - four times what they likely expected. While a dramatic jump like this is rare, overnight price changes are common.

The risk can also work against a seller. Using the same $50 stock, a customer who places a market order to sell after the market closes could end up selling at a much lower price if the stock drops overnight. For that reason, investors generally avoid placing market orders overnight.

As with the other order types covered in this unit - limit, stop, and stop limit - customers placing a market order must also specify how long the order remains in effect: orders are either day orders or good-til-canceled (GTC) orders:

  • Day orders are canceled at the end of the trading day if they haven’t executed.
  • GTC orders remain active until the customer cancels them, which could be days, weeks, or months.

Because market orders are designed to execute immediately, broker-dealers automatically enter market orders as day orders by default, unless the customer specifies GTC.

Here’s a video that dives further into market orders:

Key points

Order Types Overview

  • Four main types: market, limit, stop, stop limit
  • Investor must specify execution method when placing a trade

Market Orders

  • No price specified; executes at next available market price
  • Typically fills within seconds of placement
  • Execution guaranteed, price NOT guaranteed
    • Main risk: price uncertainty, especially overnight

Market Order Price Risk

  • Overnight news can cause big price swings before market opens
  • Buy example: stock at $50 after close, news causes open at $200 — order fills near $200
  • Sell example: overnight drop causes execution at much lower price than expected
  • Investors generally avoid placing market orders when market is closed

Order Duration: Day vs. GTC

  • Day orders: cancel automatically at end of trading day if unfilled
  • Good-til-canceled (GTC) orders: stay active until customer cancels (days/weeks/months)
  • Applies to all order types (market, limit, stop, stop limit)
  • Broker-dealers default market orders to day orders unless customer requests GTC

More from Customer orders

  • Limit orders
  • Stop orders
  • Stop limit orders
  • Order types summary
  • Additional specifications