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It is well known that Institutional traders (Large trading firms, market makers) most of the time use LIMIT orders or Hidden limit orders. My question is, do they ever use market orders in their trading?

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The problem with market orders is that if there is any technical delay in getting the order into the exchange, a delay in market data, or a short term lack of liquidity, there is a risk that the market order would execute at a much worse price than intended.

For the most part firms use marketable limit orders. For example, a stock is trading at $100 and the firm wishes to buy - they could submit a limit order to buy at $105. This has the same effect as a market order, but puts an upper bound on the execution so that the order would not execute at $105.01 or higher.

To answer your question: No.

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In the regular course of trading as already described in a previous answer, no. Most trades are being executed with clear and tight expectations around acceptable levels to enter or exit a position.

However, you asked if they ever use market orders. The answer is, in very unique, extreme or fast-moving market conditions, yes. Some scenarios that might fit the bill:

  1. The trader knows something market-moving that will be picked up by the broader market any second and wants to own (or sell) more than she expects to be available at that moment (doesn't necessarily have to be insider trading, could be breaking news she found on an obscure blog or twitter account)
  2. A significant development with open-ended risk just hit the market and traders are trying to get into or out of positions
  3. In a market crash where value is evaporating by the second and prices are so fluid that limit orders are obsolete by the time they're entered

A good way to think of these scenarios is to imagine an FX trader the day the GBP dropped 10% intra-day after the Brexit vote, or imagine what institutional traders would be doing if tomorrow every state/city/country came out saying the world would be on lockdown till 2021.

Finally, note that the answer to this question also depends on the securities being traded. In some markets, institutional traders have the ability to sweep an entire chain of bid/ask prices. In those instances they're not entering any orders the way you're thinking, just directly taking what the market offers.

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