Guide to Market Order

Market orders and limit orders are two core trading instructions. Below is a detailed introduction to market orders.

1.Market order vs limit order

Market orders and limit orders are two common types of trading instructions, differing in their execution methods and price setting.

Limit orders are traded within the price range you specified, while market orders are traded at the current market price. Market orders offer the advantage of rapid execution. However, in highly volatile markets, the actual execution price might differ from the expected price. In contrast, limit orders provide more precise control over the transaction price but do not guarantee immediate execution.

2. Scenarios to use market orders

The choice between order types usually depends on your goals and market conditions.

• Fast execution: If you want to trade immediately and ensure the order is filled, a market order is an ideal choice.
• High-liquidity markets: In high-liquidity markets, market orders are more likely to be executed at favorable prices.
• Short-term trading: For short-term traders, market orders allow faster entry into and exit from the market.

3. Reasons for market order rejection (with a prompt suggesting you switch to a limit order due to trading restrictions or high volatility)

Since market orders offer no price guarantee, trading platforms may restrict their use to protect you in case of abnormal stock liquidity (e.g., when a market volatility interruption mechanism is triggered or when a stock is suspended from trading) or excessive price fluctuations due to uncertain reasons, as determined by the platform's internal risk control policies. You can switch to a limit order and continue submitting orders.

4. Risks of using market orders

• Price difference: In highly volatile markets, market orders may be executed at prices different from expectations, resulting in increased transaction costs.
• Lack of price control: As no upper or lower price limits are set, you cannot control the specific execution price of the trade.
• Not applicable to low-liquidity markets: In low-liquidity markets, market orders may face a lack of counterparties or significant price fluctuations. The reason is that for instruments with poor liquidity, forced execution might encounter abnormally priced orders (e.g., very high sell orders or very low buy orders). When liquidity is insufficient, the market order will continue matching with the next available order, potentially resulting in a highly unfavorable price.
• Inherent risks of market orders: You might buy at a higher price or sell at a lower price than expectations, potentially even at extreme prices. If you want to control the fill price range, it is essential to use a limit order with a specified price.
• Closely monitor order status and execution information: When placing a market order, if the stock price fluctuates violently, lacks liquidity, or has no immediate buy/sell orders, the execution price might exceed expectations, or the order may fail to fill and be canceled.

5. Market-order chase

"Market Order with Chase" means that if a market order fails to execute, or executes only in part, due to insufficient market liquidity, the system will automatically cancel the order and resubmit it. If, after several retries, the order still cannot be filled, the trading instruction may be cancelled altogether, which could result in a partial fill.

The Market Order with Chase function is available for Hong Kong stocks, U.S. stocks, and U.S. stock options.
 

Key takeaways:

• Core difference
  • Market order: Executes at the best available current market price, prioritizing speed of execution over price control. Suitable for high-liquidity markets or situations requiring immediate execution.
  • Limit order: Execute only at a specified price or better, guaranteeing price but not immediate execution. Ideal for price-sensitive trades or transactions in low-liquidity environments.
• Market order risks and limitations
  • Price deviation: In volatile markets, the actual execution price can significantly differ from the expected price (such as buying higher or selling lower).
  • Liquidity risk: In low-liquidity markets, orders may be filled at extreme prices (e.g., due to abnormally priced pending orders).
  • Platform restrictions: During excessive stock volatility, trading halts, or when risk control mechanisms are triggered, market orders may be rejected, requiring a switch to limit orders.

Disclosures

Market orders are provided by Longbridge as a convenient online trading method for customers. While Longbridge strives to offer stable services, it cannot guarantee absolute reliability. Longbridge shall not be held liable for any losses or damages resulting from the non-execution of market orders due to factors such as network interruptions, server anomalies, or other physical factors.