Let's look at an example.
Imagine a client sends a market order to sell 20,000 shares.
A market order simply means execute immediately at the best available prices.
It prioritizes speed and certainty over price control.
The sell order hits the bid side starting at the best bid of 182.8.
The first order 8,800 shares at 182.8 is executed in full, leaving 11,200 shares still to sell the next order, another 4,200 shares at 182.8 is also filled.
Now, 7,000 shares remain.
The next best bid is 182.7, and those final 7,000 shares trade there, the result is a total sale of 20,000 shares across multiple price levels.
182.8, another 182.8, and 182.7.
For a volume weighted average price of roughly 182.765.
Because the order consumed liquidity at several price levels, it's effectively walked down the book to find buyers.
Once the trade is done, the order book updates, the new best bid becomes 182.7.
With 7,088 shares remaining at that level, while the best offer stays at 183.1.
That's the new market touch.
The key takeaway is that a market order fills quickly and completely, but at the cost of giving up price control.
If liquidity is thin, the trader might experience slippage, meaning the average execution price is slightly worse than expected.
Now let's compare that with a limit order.
In this case, an instruction to buy 10,000 shares with a limit or top of 183.3.
A limit order tells the market buy, but only up to this price or sell, but only down to this price.
It prioritizes price discipline over immediacy.
Here's how it plays out.
The order starts lifting the offer side, buying from the lowest available prices upward, but only as high as 183.3.
The the first offer, 1,450 shares at 183.1 that's filled.
Then 2,200 shares at 183.2, followed by 188 shares at the same level, and finally, 4,200 shares at 183.3.
That makes a total of 8,038 shares executed.
That's an average price of roughly 183.234, but the remaining 1,962 shares don't trade immediately because the client's limit is 183.3 and the order won't buy above that price, and there are now no remaining sell orders at 183.3 or better.
The remaining volume is added to the bid side of the order book waiting for sellers to come down to that level.
This example shows the strength of a limit order.
It gives the trader full control over the maximum price paid, but it may not fill completely if the market never reaches that level.
So how do market and limit orders compare? A market order executes immediately taking whatever prices are available.
The advantages are speed and certainty.
You know the trade will happen right away.
The downside is that you give up price control and large trades can move the market against you.
A limit order by contrast executes only at your specified price or better.
The benefit is price protection.
You decide the maximum you are willing to pay or the minimum you are willing to accept for selling.
The trade off is that you might not get filled if the market never reaches your price.
Another way of looking at this is that market orders take liquidity while limit orders provide it.
Limit orders can also include additional execution instructions that define how long they remain active or how they should be handled.
For example, immediate or cancel IOC means fill whatever is available right now and cancel the rest.
Fill or kill. FOK means fill the entire size immediately or cancel the whole order, all or none.
A ON means fill the full size in one go, even if that means waiting and day or good till canceled.
GTC orders define how Long the order stays in the book just for the trading day or until it's canceled manually.
In practice, traders often use a combination of both market orders to enter or exit quickly and limit orders to fine tune execution and manage risk.
