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What’s the difference between ‘limit’ and ‘market’ orders?

There’s a lot more to trading stocks than just “buy” and “sell,” and it’s easy to be confused by the types of orders you may have heard about. So here’s a quick comparison:

Market order: A customer order for immediate execution at the best price available when the order reaches the marketplace. The most common type of order, a market order is nearly always filled, since no price is specified.

Market orders are good for buying and selling shares of liquid, large cap companies, where you don’t have to worry about not getting a good price (and when your order is placed while the market is open).

Limit order: An order to execute a transaction only at a specified price (the limit) or better. A limit order to buy would be at the limit or lower, and a limit order to sell would be at the limit or higher. Limit orders are used by investors who have decided on the price at which they are willing to trade, and may be more expensive to execute than market orders.

Limit orders can be useful when buying and selling smaller companies with lower numbers of shares traded each day, to make sure you know how much you’ll pay or how much you’ll get when you sell.

 

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Motley Fool contributor Scott Phillips (TMFGilla) has no position in any stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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