Question

What is the market order? What is the limit order?

Answer 1

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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