Market Orders
A ‘market’ order is the simplest order of all. When you click to ‘buy’ or ‘sell’ at ‘market’ you are giving an instruction to execute the trade at the best buying or selling price available in the current market. Typically this means buying at the higher end of the dealing spread or selling at the lower end. Remember: the ‘spread’ is the difference between the price you can sell at and the price at which you can buy. It is constantly changing as factors such as order flow and market events mean that the prices are moving up and down. What this means is that when you give an order to buy or sell ‘at market’ you are guaranteed to have your order filled. However, the price at which you deal is not guaranteed. You may end up dealing at a better, or worse, price than was originally available as the underlying bid/offer spread fluctuates due to market conditions.
Limit orders
Limit orders a different from market orders in that you choose the level at which you want to trade. For instance, gold may be trading at $1,323.8 (our spread would be 1,323.6 – 1,324.0) and you put an order to buy on a limit of $1,320. In such a case you are not guaranteed a fill at this price. After all, gold might suddenly rally and never trade back down to $1,320. But if our offer price (the higher end of our dealing spread) falls to 1,320 then your limit will be filled, at $1,320 or below. So, you won’t pay more than your limit price, but there’s no guarantee that your limit will be filled. Bear in mind: the price of a ‘buy’ limit will always be lower than the prevailing offer price (higher end) of our dealing spread. The price of a limit to ‘sell’ will always be higher than the prevailing bid price (lower end) of our dealing spread. In other words, with a limit order you are always trying to deal at a better price than is currently available in the market.
