What is the market order? What is the limit order?
Market order: In a market order, you buy at the Ask Price and sell at the Bid price
Limit order: In a limit order, you can place an order to buy at the price you wish to buy and sell order at the price you wish to sell.
Example: Consider a order book as below
Bid Qty | Bid Price | Ask Qty | Ask Price |
100 | $10.00 | 80 | $10.50 |
40 | $9.80 | 20 | $10.60 |
120 | $9.70 | 123 | $10.70 |
42 | $9.60 | 422 | $10.80 |
In the order book, the market price to buy is $10.50 per share and the market price to sell your shares is $10.00 per share.
If you place a market order to buy 10 shares, then your order gets executed at the price of $10.50 per share.
After the transaction, the order book looks like this (assuming there is no other order)
Bid Qty | Bid Price | Ask Qty | Ask Price |
100 | $10.00 | 70 | $10.50 |
40 | $9.80 | 20 | $10.60 |
120 | $9.70 | 123 | $10.70 |
42 | $9.60 | 422 | $10.80 |
Notice that the Ask Qty has gone down by 10 because you bought 10 shares.
Now, if you place a market order to sell your shares then your order gets executed at $10 per share, which results in a loss.
You can place a limit order to sell your shares. You can ask $10.60 to sell your shares. The order book looks like this:
Bid Qty | Bid Price | Ask Qty | Ask Price |
100 | $10.00 | 80 | $10.50 |
40 | $9.80 | 30 | $10.60 |
120 | $9.70 | 123 | $10.70 |
42 | $9.60 | 422 | $10.80 |
Notice that the Ask Qty to sell your shares at $10.60 has gone up by 10.
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