ETF essentials · 2 minute read
Market orders versus limit orders: what is the difference?
The short answer
A market order aims to trade immediately at the best available price. A limit order sets the highest price you will pay when buying or the lowest price you will accept when selling.
Why it matters
An ETF has a bid (the price available when selling) and an ask (the price available when buying). These prices can change between placing an order and completing the trade.
A market order prioritises completion, not the exact price. In a liquid market the difference may be small, but an unexpected price is possible when trading is thin or markets are moving quickly.
A limit order gives more price control. A buy order can execute only at your limit price or lower; a sell order only at your limit or higher. Reaching that price does not guarantee a trade. Available buyers or sellers, orders ahead of yours and the time the order remains active all matter. Some or all of it may remain unfilled.
Platforms can use different labels and may offer additional order types. Check how your provider handles them.
A simple example
An ETF is offered at €100.00. A market buy order may complete near that level, but the price could move before execution.
A buy limit order at €100.05 will not buy above €100.05 per unit, before broker fees. If no seller accepts that price, the order will not complete.
What to check
- What are the current bid and ask prices?
- How wide is the spread?
- Is the underlying market open?
- Is price certainty or immediate completion more important?
- How long will the order remain active?
Key term explained
The ask is the price available to a buyer. The bid is the price available to a seller. The difference is the bid–ask spread.
An order type controls how a trade is attempted. It does not protect you from the investment itself falling in value.