Would a market buy order execute at a ridiculous ask price?

Question

I was looking at a Vanguard ETF after the market had closed. The ETF usually trades in the 80 dollar range. I was looking to put in a market order for some shares that would execute the next morning since I wasn’t too concerned about the exact price. I got to the order screen and saw the estimated cost of my shares was being calculated on an ask price of around 175 dollars, so I quickly cancelled that.

My question is would my trade likely have actually executed at that price in the morning?

More generally, what if that ask price were some ridiculous amount, say 10,000 dollars?

Answer 1

My question is would my trade likely have actually executed at that price in the morning

In this specific example unlikely. The ETF is highly traded and the price in the morning when trade would get executed would be around 80.

But this can happen and does happen on illiquid stocks. You will see limit orders at very low buy or very high sell price. There are individuals who are waiting for some one who doesn't understand the market to make a mistake and they profit.

If you are not to bothered about price instead of market order put an limit order that is about a dollar more, it has similar effect of the market order.

Answer 2

Bid-ask spreads tend to widen after-hours when market makers depart. If you place a trade for after-hours execution, you need to be very careful as you may not be able to trade at a good price even if the security is liquid during the trading day. However, you appear to be placing an order for regular-hours execution, so the after-hours ask at the time of entering the order is not very relevant (except that the broker may restrict your buying power on a market order based on this quote).

Generally, a market buy order is equivalent to a limit buy order at an infinite (or very high) price, so I disagree with Harper's suggestion that you would pay less with a market order. Even if you enter a limit buy order at $10,000, you'll be matched with the lowest available ask for the quantity bought (same as a market order), which is unlikely to be anywhere near $10,000 during regular hours.

Stock exchanges follow specific algorithms to match bids and asks. This can include a special auction to match orders accumulated overnight for the start of regular trading. These rules tend to keep trade prices near the "center" of the market even if there are some outlier bids and asks. Market orders piggyback on this liquidity.

Answer 3

Well if you had ordered a "market" purchase, then in the morning it would most likely have triggered on the $80ish figure. The number provided was just a guesstimate, and it sounds like that system has a glitch. It doesn't control the price you pay, unless you selected a limit order.

If you had selected a limit order of $175, then you'd have paid $175, by golly!

So yeah, you could buy a $80 stock at $10,000, the system would find that buyer Real Quick, and you'd be crying in your soup to the tune of $9920 per share.

You can also play the reverse game and place "ask" orders for ludicrous amounts, and you might get lucky. That's where that goofy number came from in the first place. Their system should have filtered it out as not a bona-fide order.