How do market orders differ from limit orders?

Market orders differ from limit orders primarily in terms of their execution conditions. A market order is designed to be executed immediately at the best available current market price. This means that when an investor places a market order, they are accepting the price that is available at that moment, ensuring that the order is filled as quickly as possible.

On the other hand, a limit order specifies a particular price at which the investor is willing to buy or sell a security. This type of order will only be executed if the market reaches the specified price or better. If the market price does not meet the limit set by the investor, the order will not be executed, which means that the investor retains more control over the price they pay or receive but may wait longer for the order to be filled or it may not be filled at all.

Understanding this distinction is crucial for investors, as it influences their trading strategy based on their goals—whether they prioritize immediate execution or price control.