Reviewed by Gotrade Internal Analyst
When you start investing in stocks, one of the first things you need to understand is how to actually place a trade. Two of the most common order types in trading are the market order and the limit order.
Knowing the difference between a limit order vs market order can help you buy and sell at better prices and avoid costly mistakes.
Here is a simple breakdown of both order types and when to use them.
What Is a Market Order?
A market order is an instruction to buy or sell a stock immediately at the best available price.
When you place a market order, the trade executes right away, but the exact price is not guaranteed.
For example:
- Stock XYZ is currently trading at $100.
- You place a market order to buy 10 shares.
- The order fills instantly, but the price might be $100.02 or $99.98 depending on market conditions.
Market orders prioritize speed over price. They are the simplest way to enter or exit a position, and work best in highly liquid markets where buy and sell prices are very close together.
What Is a Limit Order?
A limit order is an instruction to buy or sell a stock only at a specific price or better.
You set the price in advance. The order will only execute if the market reaches your target price.
For example:
- Stock XYZ is trading at $100.
- You place a limit order to buy at $95.
- The order will only fill if the price drops to $95 or lower.
Limit orders prioritize price over speed. You may not always get filled, but you will never pay more than your set price.
Types of Limit Orders
Buy limit order placed below the current market price. You are waiting for the price to fall before buying.
Sell limit order placed above the current market price. You are waiting for the price to rise before selling.
Key Differences Between Market and Limit Orders
The core difference is control. A market order gets you in or out fast. A limit order gives you control over the price you pay or receive.
| Aspect | Market Order | Limit Order |
|---|---|---|
| Execution speed | Immediate | Only when price is met |
| Price control | No guarantee | You set the price |
| Best for | Fast execution | Specific entry/exit price |
| Risk | Price slippage | Order may not fill |
When to Use Each Order Type
Choosing the right order type depends on your situation and goals.
Use a market order when:
- You need to enter or exit a position quickly.
- You are trading highly liquid stocks like large-cap US stocks.
- The spread between buy and sell price is very small.
- Getting the trade done matters more than the exact price.
Use a limit order when:
- You have a specific target price in mind.
- You are trading in volatile or thinly traded markets.
- You want to buy at a lower price than the current market price.
- You want to lock in a profit by selling at a higher target price.
For most beginner investors, limit orders offer more control and peace of mind, especially in fast-moving markets.
Risks of Incorrect Order Selection
Choosing the wrong order type can lead to unexpected outcomes.
Market order: price slippage
Slippage happens when your order fills at a different price than expected, which is common in fast or illiquid markets.
Example: You place a market order at $50, but by the time it fills, the price has jumped to $53. You paid $3 more per share than expected. In low-volume stocks, slippage can be significant.
Limit order: missed trades
The biggest risk is that your order never fills. If the stock never reaches your limit price, you miss the trade entirely.
Example: You set a buy limit at $95 for a stock trading at $100. The stock rises to $120 without ever dropping to $95. You miss the move completely.
Always double-check your order type before confirming a trade.
Conclusion
A market order executes immediately at the current price. A limit order executes only at your specified price or better.
Both order types in trading serve different purposes. Market orders are best for speed, while limit orders are best for price precision. Taking the time to understand how each works can help you trade with more confidence and avoid common mistakes.
When using the Gotrade App, you can choose your preferred order type before placing any trade. Start with limit orders to get a better feel for how prices move before defaulting to market orders.
FAQ
What is the difference between a limit order and a market order?
A market order fills immediately at the best available price. A limit order only fills at your specified price or better.
Which order type is safer for beginners?
Limit orders give beginners more control over the price they pay, which can help avoid unexpected costs from price slippage.
Can a limit order expire?
Yes. Limit orders can be set as day orders (expire at end of trading day) or good-till-cancelled (GTC), which remain active until filled or manually cancelled.
References
- Investopedia, Market Order vs. Limit Order: Key Differences, 2026.
- FINRA, Understanding Order Types, 2026.
