Order Types and Execution
An order is an instruction with a price condition, a time condition and sometimes a trigger. The main types are few, and the dangerous ones are dangerous in specific, knowable ways.
Market orders
Execute immediately at the best available price. Certain execution, uncertain price.
The uncertainty is larger than people expect for anything beyond small size, because the order walks the book through successive price levels. In a thin market a market order can fill dramatically away from the last quote.
Limit orders
Execute only at your price or better. Certain price, uncertain execution.
A limit order that rests in the book is providing liquidity, and typically earns a rebate rather than paying a fee. Its risks are non-execution and adverse selection: it fills when the other side is eager, which correlates with the price moving against you.
The rest of this lesson is for subscribers
Unlock every lesson in Asset Classes and Trading Products, and every other premium course.
Subscribe to continueTest your knowledge
Keep reading Asset Classes and Trading Products
48 lessons in this course, and every other premium course, on one subscription.
- Every lesson in all seven courses, with the worked examples and interactive simulators
- Graded questions on every lesson, with explanations for the wrong answers as well as the right one
- The trainers, timed assessments and brainteaser library that go with them