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Futures Dictionary Series: Market Order

Do you know what market order is? In the seventh installment of our Futures Dictionary Series today, we’ll explain the term and why it is important for all traders out there to know about it.

Market Order

Market order is an order type that a trader makes through his brokerage house to buy or sell a futures contract immediately at the best available current price. It is a default order that guarantees execution if you don’t give your broker other specific instructions but the price at which the market order will be executed is not guaranteed. This is because the last-traded price is not necessarily the price at which a market order will be executed.

For example, Andrew places a market order to buy 10 lots of FBM KLCI Futures contract (FKLI) when the best offer price is RM1600. If other orders are executed first, Andrew’s market order may be executed at a higher price than he had anticipated.

Market Order

In fast moving markets, the price at which a market order is executed is often different from the last-traded price or real-time quote. Besides that, a fast-moving market may cause parts of a large market order to execute at different prices.

Let’s say Andrew places a market order to buy another 10 lots of FBM KLCI Futures contract (FKLI) at RM1650. In a fast-moving market, 5 lots of the order could execute at RM1650 while the other 5 lots execute at a higher price.

You need to be careful when using market orders especially on futures contract with a low average daily volume as the ask price can be a lot higher than the current market price. You may end up paying a lot more than what you had expected. Therefore it is much safer to use a market order on high-volume futures contract.

Read more of our past Futures Dictionary Series:

1. Futures Dictionary Series: Approved Delivery Facility
2. Futures Dictionary Series: Capital Market Services Representatives (CMSR)
3. Futures Dictionary Series: Actuals
4. Futures Dictionary Series: At The Market
5. Futures Dictionary Series: Back Months
6. Futures Dictionary Series: Futures Spread

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