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Introduction
1. Common stock
2. Preferred stock
3. Debt securities
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 Agency vs. principal capacity
12.2 Roles
12.3 Bid & ask
12.4 The markets
12.5 The Securities Exchange Act of 1934
12.6 Customer orders
12.6.1 Market orders
12.6.2 Limit orders
12.6.3 Stop orders
12.6.4 Stop limit orders
12.6.5 Summary of the order types
12.6.6 Additional order specifications
12.6.7 Customer order rules
13. Brokerage accounts
14. Retirement & education plans
15. Rules & ethics
Wrapping up
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12.6.1 Market orders
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12. The secondary market
12.6. 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 the focus of this chapter. They’re commonly used when an investor wants an immediate execution. A market order doesn’t include a specific price; instead, 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 occur. However, the price is not guaranteed. That creates risk, especially if you place the order when the market is closed.

For example, suppose 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 - about 4× more than they likely expected. While extreme moves like this are uncommon, overnight price changes are common.

The risk works in the other direction, too. 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. That’s why investors generally avoid placing market orders overnight.

As with the other order types covered in this unit - market, limit, stop, and stop limit - customers 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 intended 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
  • All orders require specifying execution method and duration

Market orders

  • Used for immediate execution
  • No specific price set; executes at next available market price
  • Typically fills within seconds of placement

Execution vs. price guarantee

  • Execution is guaranteed — trade will occur
  • Price is not guaranteed
  • Risk increases when order placed while market is closed

Overnight risk example

  • Stock at $50 after close; major news causes open at $200
    • Buy market order fills near $200 (much higher than expected)
  • Reverse risk: sell market order could fill much lower if price drops overnight
  • Extreme moves are rare, but overnight price changes are common
  • Lesson: avoid placing market orders overnight

Order duration: day vs. GTC

  • Day orders: cancel automatically at end of trading day if unexecuted
  • GTC (good-til-canceled) orders: stay active until customer cancels (days/weeks/months)
  • Market orders default to day orders unless customer requests GTC

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Next  | 12.6.2 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 the focus of this chapter. They’re commonly used when an investor wants an immediate execution. A market order doesn’t include a specific price; instead, 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 occur. However, the price is not guaranteed. That creates risk, especially if you place the order when the market is closed.

For example, suppose 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 - about 4× more than they likely expected. While extreme moves like this are uncommon, overnight price changes are common.

The risk works in the other direction, too. 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. That’s why investors generally avoid placing market orders overnight.

As with the other order types covered in this unit - market, limit, stop, and stop limit - customers 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 intended 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
  • All orders require specifying execution method and duration

Market orders

  • Used for immediate execution
  • No specific price set; executes at next available market price
  • Typically fills within seconds of placement

Execution vs. price guarantee

  • Execution is guaranteed — trade will occur
  • Price is not guaranteed
  • Risk increases when order placed while market is closed

Overnight risk example

  • Stock at $50 after close; major news causes open at $200
    • Buy market order fills near $200 (much higher than expected)
  • Reverse risk: sell market order could fill much lower if price drops overnight
  • Extreme moves are rare, but overnight price changes are common
  • Lesson: avoid placing market orders overnight

Order duration: day vs. GTC

  • Day orders: cancel automatically at end of trading day if unexecuted
  • GTC (good-til-canceled) orders: stay active until customer cancels (days/weeks/months)
  • Market orders default to day orders unless customer requests GTC

More from Customer orders

  • Limit orders
  • Stop orders
  • Stop limit orders
  • Summary of the order types
  • Additional order specifications