What's the difference between market orders and limit orders?

"Orders" are directions investors can give to a brokerage to buy or sell a stock, bond or other financial asset. When you place a market order, you are asking to buy or sell promptly at the current market price. With a limit order, you're stipulating that you want the transaction only to occur at a particular price or better, even though there is a possibility the order will not be executed.

A market order is an order to buy or sell a security at the current market price. A market order typically ensures an execution, but it does not guarantee a specified price. It is executed at the price of the stock at the moment the transaction is presented for execution on an exchange or at a dealer. Because there may be a small delay, for example, or other orders may arrive at the point of execution prior to your order, the execution price may be different from the one you saw when you clicked "buy" or "sell."

For instance, if you submit a market order to buy a popular stock you see quoted at $10 per share, by the time that order is executed, even if only moments later, the price may have dropped to $9.90 per share or risen to $10.10 per share. In a volatile market, the price difference could be even more significant.

Say you want to buy a particular stock at $11 per share or less, and it's currently trading at $12. A limit order will execute a purchase of the number of shares you choose if and when the price falls to your maximum purchase price of $11 or below. If the price never drops that far while your order is in force — or if it's in your range when you submit the order but moves above $11 before the transaction is accepted and stays there as long as your order is in force — the purchase won't be made. Limit orders similarly allow you to set a desired price range for the sale of shares you own. If the stock never reaches that price range while your order is in force, no shares will be sold.