When trading forex, CFDs, or stocks, understanding order types is essential. The two most common are market orders and limit orders. Choosing the right order type can significantly affect your trading results, execution speed, and risk management.
This guide explains the difference between market and limit orders, how each works, and tips for using them effectively.
1. What Is a Market Order?
A market order is an instruction to buy or sell a financial instrument immediately at the current market price.
- Advantages:
- Instant execution
- Useful in fast-moving markets
- Ensures your trade is entered or exited quickly
- Disadvantages:
- May experience slippage in volatile markets (What Really Causes Slippage During Trading)
- Price may differ slightly from expected, especially for large positions
Example:
If EUR/USD is trading at 1.1200/1.1202 and you place a market buy order, your order will execute at the ask price of 1.1202.
2. What Is a Limit Order?
A limit order is an instruction to buy or sell a financial instrument at a specific price or better.
- Advantages:
- You control the entry or exit price
- Avoid slippage if set correctly
- Useful for strategic entries in trending or volatile markets
- Disadvantages:
- Execution is not guaranteed if the market never reaches your price
- May miss trading opportunities in fast-moving markets
Example:
If you want to buy EUR/USD at 1.1190 while the market is at 1.1202, you place a buy limit order at 1.1190. The order executes only if the price falls to 1.1190 or lower.
3. Key Differences Between Market and Limit Orders
Feature | Market Order | Limit Order |
Execution | Immediate at current price | Only at specified price or better |
Control | Less control over price | Full control over price |
Risk of Slippage | High in volatile markets | Low |
Speed | Fastest execution | May not execute if target price not reached |
Best For | Entering/exiting quickly | Strategic entries/exits or price-specific trades |
4. When to Use Market Orders
- Breaking news or major market events
- When speed is more important than price precision
- Closing a losing trade quickly to limit losses
Market orders are ideal for traders who prioritize execution certainty over exact price
5. When to Use Limit Orders
- Planning strategic entries during retracements in trending markets
- Targeting specific profit-taking levels
- Avoiding slippage in volatile or low-liquidity instruments
Limit orders give traders price control but require patience for execution.
6. Combining Market and Limit Orders
Professional traders often use a combination of both:
- Market Orders: Quickly enter or exit positions in fast-moving markets
- Limit Orders: Set targets for entry, take-profit, or stop-loss levels
This strategy helps balance execution speed and price precision while managing risk.
7. Tips for Beginners
- Understand the Market Conditions
- Use market orders during high liquidity for fast execution
- Use limit orders during low volatility to control entry price
- Check Spreads and Fees
- Spread size may affect limit order execution
- Learn more in What Are Spreads? Complete Beginner’s Guide
- Practice on a Demo Account
- Test market and limit orders without risking real money (Beginner Guide: How Demo Accounts Actually Help You)
- Use Stop-Loss and Take-Profit Orders
- Protect your trades and lock in profits with predefined levels
Conclusion
Understanding the difference between market and limit orders is crucial for executing trades effectively. Market orders prioritize speed, while limit orders prioritize price control. By mastering both, traders can improve execution, reduce slippage, and manage risk more efficiently.
Trade smarter by choosing the right order type—read verified broker reviews on Broker Reviewers to select brokers with reliable execution and trading conditions.
Frequently Asked Questions (FAQs)
Market orders execute immediately at the current price, while limit orders execute only at a specified price or better.
It depends on strategy: market orders for fast execution, limit orders for controlled entry and risk management.
Yes, if the full order size is not available at the target price.
Yes, spreads may influence the execution price, especially for tight targets in volatile markets.
Absolutely—using a demo account helps understand how each order behaves under different market conditions.
