What is a Market Order?
With a market order, you instruct a broker to execute a trade as soon as possible at the prevailing market price.
Financial institutions are required to execute market orders without regard to price changes. Therefore, the possibility exists that a market order will execute at a price different from the one you were quoted when placing the order.
Because exchange rates are in constant flux, currency prices will often move away from the price you expect to pay in the seconds it takes to fill your order. This can happen even with the fastest trading systems. You can expect a 2 to 3 point difference between the actual and the expected fill price in liquid markets and more when markets are volatile.
The difference is known as slippage. Slippage can work for or against you depending on market conditions and the direction of your trade. If you were planning on buying EUR when the price was 1.2000 and the price rose to 1.2002 in the seconds it took your trading platform to fill the order, you would be 2 pips worse off. However, prices can also move in your favour.
Pros and Cons of Market Orders
- Certainty of execution.
- Uncertainty around the actual fill price.