When would one actually want to use a market order instead of a limit order?
If you have $10000 and wish to buy 1000 shares of a $10 stock, you risk borrowing on margin if you go over a bit. For some people, that's a non-issue. Some folk with an account worth say, $250K don't mind going over now and then or even let the margin account run $100K on a regular basis.  But your question is about market orders. A limit order above the market price will fast-fill at the market anyway. When I buy a stock, it's longer term usually. A dime on a $30 share price won't affect my buy decision, so market is ok for me. You put in a market order when you want to sell to whomever raises their hand first.  It results in the fastest possible liquidation of your stock. It's appropriate when you need to sell now, regardless of price. An example of when to use it: It's 3:55 PM, the market's going to close in 5 minutes and you need to sell some stocks to make some kind of urgent payment elsewhere.  If instead you have a limit order in place, you might not reach the limit price before the market closes, and you'll still own the stock, which might not be what you want. Firstly what are you trading that you could lose more than you put in? If you are simply trading stocks you will not lose more than you put in, unless you are trading on margin. A limit order is basically that, a limit on the maximum price you want your buy order bought at or the minimum price you want your sell order sold at. If you can't be glued to the screen all day when you place a limit order, and the market moves the opposite way, you may miss out on your order being executed. Even if you can be in front of the screen all day, you then have to decide if you want to chase the market of miss out on your purchase or sale. For example, if a stock is trading at $10.10 and you put a limit buy order to buy 1000 shares at or below $10.00 and the price keeps moving up to $10.20, then $10.30 and then $10.50, until it closes the day at $11.00. You then have the choice during the day to miss out on buying the shares or to increase your limit order in order to buy at a higher price. Sometime if the stock is not very liquid, i.e. it does not trade very often and has low volume, the price may hit $10.00 and you may only have part of your order executed, say 500 out of your 1000 shares were bought. This may mean that you may have to increase the price of your remaining order or be happy with only buying 500 shares instead of 1000. The same can happen when you are selling (but in reverse obviously). With market order, however, you are placing a buy order to buy at the next bid price in the depth or a sell order to sell at the next offer price in the depth. See the market depth table below:  Note that this price depth table is taken before market open so it seems that the stock is somewhat illiquid with a large gap between the first and second prices in the buyers (bid) prices. When the market opened this gap is closed, as WBC is a major Australian bank and is quite liquid. (the table is for demonstration purposes only). If we pretend that the market was currently open and saw the current market depth for WBC as above, you could decide to place a limit sell order to sell 1000 shares at say $29.91. You would sell 100 shares straight away but your remaining 900 sell order will remain at the top of the Sellers list. If other Buyers come in at $29.91 you may get your whole sale completed, however, if no other Buyers place orders above $29.80 and other Sellers come into the market with sell orders below $29.91, your remaining order may never be executed. If instead you placed a market sell order you would immediately sell 100 shares at $29.91 and the remaining 900 shares at $29.80. (so you would be $99 or just over 0.3% worse off than if you were able to sell the full 1000 shares at $29.91). The question is how low would you have had to lower your limit order price if the price for WBC kept on falling and you had to sell that day? There are risks with whichever type of order you use. You need to determine what the purpose of your order is. Is it to get in or out of the market as soon as possible with the possibility of giving a little bit back to the market? Or is it to get the price you want no matter how long it takes you? That is you are willing to miss out on buying the shares (can miss out on a good buy if the price keeps rising for weeks or months or even years) or you are willing to miss out on selling them right now and can wait for the price to come back up to the price you were willing to sell at (where you may miss out on selling the shares at a good price and they keep on falling and you give back all your profits and more). Just before the onset of the GFC I sold some shares (which I had bought a few years earlier at $3.40) through a market order for $5.96. It had traded just above $6 a few days earlier, but if instead of a market order I had placed a limit order to sell at $6.00 or more I would have missed out on the sale. The price never went back up  to $6 or above, and the following week it started dropping very quickly. It is now trading at about $1.30 and has never gone back above $2.00 (5.5 years later). So to me placing a limit order in this case was very risky. "After learning about things that happened in the ""flash crash"" I always use limit orders. In an extremely rare instance if you place a market order when there is a some glitch, for example some large trader adds a zero at the end of their volume, you could get an awful price.  If I want to buy at the market price, I just set the limit about 1% above the market price. If I want to sell, I set the limit 1% below the market price. I should point out that your trade is not executed at the limit price. If your limit price on a buy order is higher than the lowest offer, you still get filled at the lowest offer. If before your order is submitted someone fills all offers up to your limit price, you will get your limit price. If someone, perhaps by accident, fills all orders up to twice your limit price, you won't end up making the purchase. I have executed many purchases this way and never been filled at my limit price."
"Your logic breaks down because you assume that you are the only market participant on your side of the book and that the participant on the other side of the book has entered a market order. Here's what mostly happens: Large banks and brokerages trading with their own money (we call it proprietary or ""prop"" trading) will have a number of limit (and other, more exotic) orders sitting on both sides of the trading book waiting to buy or sell at a price that they feel is advantageous. Some of these orders will have sat on the book for many months if not years. These alone are likely to prevent your limit orders executing as they are older so will be hit first even if they aren't at a better price.  On more liquid stocks there will also be a number of participants entering market orders on both sides of the book whose orders are matched up before limit orders are matched with any market orders. This means that pairing of market orders, at a better price, will prevent your limit order executing. In many markets high frequency traders looking for arbitrage opportunities (for example) will enter a few thousand orders a minute, some of these will be limit orders just off touch, others will be market orders to be immediately executed. The likelihood that your limit order, being as it is posited way off touch, is hit with all those traders about is minimal. On less liquid stocks there are market makers (large institutional traders) who effectively set the bid and offer prices by being willing to provide liquidity and fill the market orders at a temporary loss to themselves and will, in most cases, have limit orders set to provide this liquidity that will be close to touch. They are paid to do this by the exchange and inter-dealer brokers through their fees structure. They will fill the market orders that would hit your limit if they think that it would provide more liquidity in such a way that it fulfils their obligations. Only if there are no other participants looking to trade on the instrument at a better price than your limit (which, of course they can see unless you enter it into a dark pool) AND there is a market order on the opposite side of the book will your limit order be instantaneously be hit, executed, and move the market price." In the stock market many participants enter orders that are not necessarily set at the current market price of the stock (i.e. they are not market orders, they are limit orders). They can be lower than the market price (if they want to buy) or they can be higher than the market price (if they want to sell). The set of orders at each point of time for a security is called the order book. The lowest selling price of the order book is the offer or ask, the higher buying price is the bid. The more liquid is a security, the more orders will be in the order book, and the narrower will be the bid-ask spread. The depth of the order book is the number of units that the order book can absorb in any direction (buy or sell). As an example: imagine I want to buy 100 units at the lowest offer, but the size of the lowest offer is only 50 units, and there is not any further order, that means the stock has little depth. You need to use one of each, so a single order wouldn't cover this:  The stop-loss order could be placed to handle triggering a sell market order if the stock trades at $95 or lower.  If you want, you could use a stop-limit order if you have an exit price in mind should the stock price drop to $95 though that requires setting a price for the stop to execute and then another price for the sell order to execute. The limit sell order could be placed to handle triggering a sell if the stock rises above $105. On the bright side, once either is done the other could be canceled as it isn't applicable anymore. "If there are no limit orders on the opposite side of the book when your market order gets its turn for execution, it should be rejected by the market.  A market order should generally not ""sit on the book"" like your question suggests waiting for another order to arrive.  Thus, the situation that you describe should not happen in an ordinary market that is operating in an orderly fashion. This is not to say that your order cannot ""sit"" for a while in a queue - If there is heavy volume, orders will be executed in order, so your your market order may have to wait for orders entered ahead of it to be processed.  But once its turn comes up, that's it. There are some related points to consider: I should caution that my answer is biased a bit to US stock markets, whereas you asked about currency markets.  I believe the same basic principles apply, but I'd be swayed by someone with evidence to the contrary.  I'd also note that currency tends to be more liquid than stock, so I think it's less likely that this situation would come up.  Maybe possible for a ""weak"" currency or a currency that experiences a sudden crisis of some sort." Sounds to me like you're describing just how it should work.  Ask is at 30, Bid is at 20; you offer a new bid at 25.  Either: Depending on liquidity, one or the other may be more likely. This Investorplace article on the subject describes what you're seeing, and recommends the strategy you're describing precisely. Instead of a market order, take advantage of the fact that the options world truly is a marketplace — one where you can possibly get a better price just by asking. How does that work? If you use a limit order (instead of a market order) when opening a position, you can tell your broker how much you are willing to pay to enter a trade. For example, if you enter a limit price of $1.15, you can see whether the market-maker will bite. You will be surprised at how many times you will get your price (i.e., $1.15) instead of the ask price of $1.30. If your order at $1.15 is not filled after a few minutes, you can modify your order and pay the ask price by entering a market order or limit order at the ask price (that is, you can tell your broker to pay no more than $1.30). The Limit Order are matched based on amount and time. The orders are listed Highest to Lowest on the Buy Side. The orders are listed Lowest to Highest on the Sell Side. If there are 2 Sell orders for same amount the order which is first in time [fractions of milliseconds] is first.  The about is the example as to how the orders would look like on any exchange.  Now the highest price the buyer is ready to pay is 20.21 and the lowest price a seller is ready to sell for is 20.25. Hence there is no trade. Now if a new Buy order comes in at 20.25, it matches with the sell and the deal is made. If a new Buy order comes in at 20.30, it still matches at 20.25. Similarly if a Sell order come in at 20.21, it matches and a deal is made. If a Sell order come in at 20.11, it still matches 20.21.   Incase of market order, with the above example if there is a Buy order, it would match with the lowest sell order at 20.25, if there is not enough quantity , it would match the remaining quantity to the next highest at 20.31 and continue down. Similarly if there is a Sell market order, the it would match to the maximum a seller is ready to buy, ie 20.21, if there is not sufficient buy quantity at 20.21, it will match with next for 20.19   If say there are new buy order at 20.22 and sell orders at 20.24, these will sit first the the above queue to be matched. In your above example the Lowest Sell order was at 20.10 at time t1 and hence any buy order after time t1 for amount 20.10 or greater would match to this and the price would be 20.10. However if the Buy order was first ie at t1 there was a buy order for 20.21 and then at time later than t1, there is a sell order for say 20.10 [amount less than or equal to 20.21] it would match for 20.21. Essentially the market looks at who was the first to sell at lower price or who was the first to buy at higher price and then decide the trade.  Edit [To Clarify xyz]: Say if there is an Sell order at $10 Qty 100. There is a buyer who is willing to pay Max $20 and is looking for Qty 500. Your key assumption that the Buyer does not know the current SELL price of $10 is incorrect. Now there are multiple things, the Buyer knows the lowest Sell order is at $10, he can put a matching Buy order at $10 Qty 100, and say $11 Qty 100 etc. This is painful. Second, lets say he puts a Buy order at $10 Qty 100, by the time the order hits the system someone else has put the trade at $10 and his order is fulfilled. So this buyer has to keep looking at booking and keep making adjustments, if its a large order, it would be extremely difficult and frustrating for this Buyer. Hence the logic of giving preference. The later Buy order says ... The Max I can pay is $20, match eveything at the current price and get the required shares. I would make a change to the answer from olchauvin: If you buy a call, that's because you expect that the value of call options will go up. So if you still think that options prices will go up, then a sell-off in the stock may be a good point to buy more calls for cheaper. It would be your call at that point (no pun intended). Here is some theory which may help. An options trader in a bank would say that the value of a call option can go up for two reasons: The VIX index is a measure of the levels of implied volatility, so you could intuitively say that when you trade options you are taking a view on two components: the underlying stock, and the level of the VIX index. Importantly, as you get closer to the expiry date this second effect diminishes: big jumps up in the VIX will produce smaller increases in the value of the call option. Taking this point to its limit, at maturity the value of the call option is only dependent on the price of the underlying stock. An options trader would say that the vega of a call option decreases as it gets closer to expiry. A consequence of this is that if pure options traders are naturally less inclined to buy and hold to expiry (because otherwise they would really just be taking a view on the stock price rather than the stock price & the implied volatility surface). Trading options without thinking too much about implied volatities is of course a valid strategy -- maybe you just use them because you will automatically have a mechanism which limits losses on your positions. But I am just trying to give you an impression of the bigger picture. "Always use limit orders never market orders. Period. Do that and you will always pay what you said you would when the transaction goes through. Whichever broker you use is not going to ""negotiate"" for the best price on your trade if you choose a market order.  Their job is to fill that order so they will always buy it for more than market and sell it for less to ensure the order goes through. It is not even a factor when choosing between TradeKing and Scottrade. I use Trade King and my friend uses ScottTrade.  Besides the transaction fee (TK is a few $$ cheaper), the only other things to consider are the tools and research (and customer service if you need it) that each site offers. I went with TK and the lower transaction fee since tools and research can be had from other sources. I basically only use it when I want to make a trade since I don't find the tools particularly useful and I never take an analyst's opinion of a stock at face value anyway since everybody always has their own agenda."