Why do market orders carry execution risks?
Market orders are designed for speed—they execute your trade immediately at the best available price. However, they come with a trade-off: you give up price control, which may lead to unfavourable executions in volatile or illiquid markets.
What causes execution risk in market orders?
- Price fluctuations: Rapid movements can cause your order to be filled at prices higher or lower than expected
- Low liquidity: Orders may be executed across multiple price levels, resulting in slippage
- Wide bid-ask spreads: The bigger the gap, the worse the execution price may be for you
Use market orders when liquidity is high and price precision is less important. For controlled execution, opt for limit orders.
How to reduce execution risks
- Use limit orders to cap the price you're willing to accept
- Avoid market orders during high volatility periods (e.g., market open/close, major announcements)
- Check bid-ask spread before submitting the order
What if...
| Scenario | Outcome |
|---|
| I place a market order in a volatile stock | Order may be executed at a much higher or lower price. |
| Liquidity is low | Expect partial fills or large slippage. |
| I want price control | Use a limit order instead of a market order. |
Last updated: 25 Jun 2025