When placing a trade on an exchange, an investor specifies not only the security and quantity, but also an instruction for how the order should be filled. Every trade requires matching a willing buyer with a willing seller at an agreed price. Market orders and limit orders are the two primary ways of interacting with an exchange's order book, and they embody a fundamental trade-off between execution certainty and price certainty.
Execution certainty: how market orders work
A market order instructs a broker to execute immediately at the best prices currently available. Because the instruction prioritizes speed and completion over price, it provides high execution certainty: in a normally trading market, the order usually fills right away. A market order offers no price guarantee, however. It typically executes at the best prices on the other side of the bid-ask spread, so the final price can differ from the last traded price on a quote screen, particularly in fast-moving markets, at the opening auction, or in thinly traded securities.
Price certainty: how limit orders work
A limit order sets a boundary on the execution price. A buy limit order specifies the maximum price the buyer is willing to pay, while a sell limit order specifies the minimum price the seller is willing to accept. The order only executes at the limit price or better. In exchange for this price protection, the trader gives up execution certainty: if the market never reaches the limit, or touches it only briefly without enough volume to fill the orders ahead in the queue, the order remains partially or entirely unfilled.
Market orders consume the liquidity resting at the top of the order book, while limit orders that wait in the book provide it. Whether an order trades right away depends on its price relative to the best quotes: a market order crosses the spread, while a limit order crosses only if its limit reaches the other side, and otherwise waits for an incoming counterparty.
Stop orders and conditional execution
Stop orders add a condition that stays dormant until the market reaches a designated trigger price. A stop-market order, commonly used as a stop-loss, becomes a standard market order the moment the stop price is touched or breached. This automates an exit without constant monitoring, but once triggered it executes at whatever prices are available. If an asset gaps past the stop level on overnight news or sudden volatility, the fill can land well beyond the stop price.
How this shows up on Investment Bets
On Investment Bets, opening a bet or closing one by hand works like a market order without slippage: the bet is recorded at the latest price the server has at that moment, and nobody types a price, so there are no limit or stop orders. The only condition a bet can carry is time rather than price: a target date, after which the bet settles automatically at the regular-session close of that date, or of the last trading session before it, wherever the price is. And where a real market order takes whatever price is available, opening or closing a bet by hand is refused when the server detects that its price feed has frozen, rather than recorded at an old price.