While trading, when you enter a market order, your broker’s order system will execute the order immediately regardless of price. When trading something highly liquid, that’s often fine. For example, if you’re trying to buy $10,000 of $AAPL, you’ll almost certainly get decent execution with a market order. If there’s news on the tape and you want to execute the trade immediately, this is the fastest way.
My advice: Don’t do it!
The reason is because on very rare occasions, the market will glitch. Last night, on Binance, Bitcoin fell from $87k to below $25k for a few seconds. If you had entered a market order to sell during those few seconds, you would have sold at a massive discount. There is no remedy for such issues. That’s where the market was during those few irrational seconds.
I almost always use a limit order. That’s where you specify the lowest price at which you’d sell and the highest price at which you’d buy. If I had been trying to sell Bitcoin on Binance during the mini crash, and had entered a limit order, my order wouldn’t have been executed until a few seconds later when the market recovered.
Now, let’s say you need a combination of the above; immediate news-driven execution combined with limit order security. In those circumstances, I typically enter a limit order with bounds outside the current bid/ask spread. For example, let’s say I want to sell $AAPL immediately and the current bid price is $273. I might enter a limit order with a limit of $272. That would almost certainly ensure my order would get executed immediately but without the risk of selling during a flash crash.
These situations don’t happen often, but given that one happened hours ago, I thought it was a good time to remind everyone.
Merry Christmas to all!
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