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Is market order a special kind of limit order: is a buy market order equivalent to a limit order with very high (e.g., 10x trading price) buy price.

  • As the answers below point out, there are lots of mental models to help you visualize matching engines, and if they work for you that's great. When it comes to reality, however, here's an important definition to remember: a limit order will always go into the order book (if only for a short period of time); a market order will never go into the order book. So, no, they're not the same thing. – dg99 Jun 1 '18 at 22:16
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It may or it may not be. This is an implementation detail and it actually does vary by exchange.

From a user's perspective, it is not. There is no sensible limit visible and expected.

On the CME, though, it actually is implemented exactly like that - it gets treated as a limit order with a limit way on other other side of the spread and thus it is executed immediately and hunting price.

This sometimes causes confusion, for example here: https://tradingtechnologies.atlassian.net/wiki/spaces/KB/pages/1148829/CME+Stop+Market+Orders+Display+as+Stop+Limit+Orders

where someone asks why a stop market order appears as top limit order. This has one advantage that you can actually avoid totally crazy executions that will then automatically bust because there is no orderly market.

I do algo trading, and in my own backtest simulators (I maintain my own inhouse platform) we go rid of market orders and do exactly this - one less code path, and the result is the same.

  • Thank you! I do algo trading as well, just beginning the journey, that is where this question comes from. Just wondering if it's possible to make a living full time doing it, with the similar level of income / pressure as a full time software dev job? Regards. – Helin Wang Jun 1 '18 at 1:58
  • Don't ask me - never had a full time software dev job income. Algo is not trivial, but there are a lot of people quite successfull and as your income depends on your capital (assuming a profitable algo) more than your time... hm, How do I formulate this best... software dev... yeah. Ah. Yeah. Ah. Funny.. Yeah. Hope you get the idea. But it is hard work. You may well not make it. – TomTom Jun 1 '18 at 3:31
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A market order means that you are guaranteed for your order to be executed and a trade takes place, what is not guaranteed is what price you buy or sell at.

A limit order is not guaranteed to be executed but is guaranteed, if it does get executed, to trade not higher than your buy price or not lower than your sell price.

  • Thank you! Could you answer this question: "is a buy market order equivalent to a limit order with very high (e.g., 10x trading price) buy price"? – Helin Wang May 29 '18 at 23:16
  • Whether it is a buy market order or a sell market order the answer would be as above. If you place a buy market order you may get very close to the last traded price or if the market move a lot you may get a much higher price than the last traded price. This depends a lot on the liquidity in that stock at that point in time. High liquidity - more chance you will get closer to the last traded price, low liquidity - more chance you will buy at a higher price. As I said with market orders the price you trade at is not guaranteed but your trade is guaranteed. – Victor May 30 '18 at 2:33
  • @Victor Helin is somewhat correct when you take into account that there are SEC circuit breakers, exchange rules, and broker protections that set a limit on how much a stock can move, intentionally or due to fat-finger errors. For example, for major stocks, SEC requires a trading halt for 5% change over 15 seconds, and the cheapest stocks (<$.75) have a limit of 150%. A single trade at 10x last price should set off protections. – user71659 May 30 '18 at 5:53
  • @user71659 - I never said anything about a market order going at 10x last price, that is the OP's statement. I wouldn't expect a stock of $10 being bought at $100, but with a market order you might end up buying at $10.50 or $11 or if very illiquid maybe even more. – Victor May 30 '18 at 9:41
  • The SEC circuit breakers for single stocks range from 5% to 40% depending on the price and Tier Level ranking of the stock as well as the time of the day that the event occurs. – Bob Baerker May 30 '18 at 13:09
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Technical it is not same. For ease of visualization one can treat it or think of it as limit order with high price

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