OptionsHouse is furnishing this document to you to provide some of the basic facts about market orders and the risks associated with market orders. This document is not intended to enumerate all of the risks of using market orders. If you have any questions about how market orders work, please contact our Customer Service Department at 1-877-598-3190.
Trade Execution is Not Instantaneous
Generally, a market order is subject to immediate execution but sometimes can be delayed due to high volume, or stocks with very low liquidity. When you place a market order, the price of the security may change between the time the order is placed and the time it is executed. When you place a market order when an exchange, association, electronic communications network or market is closed, that security may open for trading the next business day at a price substantially higher or lower. In addition, a quote obtained at the time a market order is entered is not a guarantee that all or part of your order will be executed at the quoted price. Large market orders may be executed in multiple lots, at different prices. Any attempt you may make to cancel a market order is only a “request to cancel,” and OptionsHouse cannot guarantee that an order will be cancelled.
A fast market is a high-volume trading session marked by extreme price fluctuations and order imbalances. Fast markets can be caused by material news announcements, unexpected market developments, and even trading halts taking place in less volatile securities. Because of these imbalances, wide price variances in short periods of time are common. On any given day, fast markets can affect a particular security, groups of securities or the market as a whole. The ability to execute orders in fast market conditions may be severely limited, and order execution may be delayed significantly. Furthermore, market orders entered in fast market conditions may be executed at prices significantly different from the prices quoted at the time the orders were entered.
Market Orders vs. Limit Orders
One way to minimize the risk of trades being executed at a price significantly different from the last quote you received is to enter a limit order. A limit order allows you to set a maximum purchase price, or a minimum sale price for your order. With a limit order, your transaction will not be executed if the price at the time of execution falls outside of the boundaries you have set with your limit order. When you place a market order, you cannot control the price at which your order will be executed.