Besides the liquidity and average price fills just discussed, the main issue with market orders is that such an order (if sent without a time-in-force specifier – see later in this lesson) will be executed at whatever price is currently present in the market. Yes, 99% of the time, it doesn’t cause real issues as the liquidity is quite sufficient, especially if you trade major currency pairs (those that constitute the US dollar index, see Lesson 9, Trading Strategies and Their Core Elements, the Common FX benchmarks – US dollar index section), but do you remember what happens around the time important economic news is released? Just have a quick look back at Figure 6.2 and Figure 6.4 in Lesson 6, Basics of Fundamental Analysis and its Possible Use in FX Trading, and refresh the US non-farm payroll (NFP) and UK GDP cases: the gaps or the distance in price between just adjacent ticks during such an event may reach dozens of pips.
So, if we consider the US NFP case, and assume that you wanted to sell at 1.0230 with a market order a second before the NFP was released, so the order most likely would have been executed at the first tick after the news release, which was at 1.0210 – 20 pips away from the desired price!
Alright, seems like it’s more or less clear with market orders: we say buy or sell and get filled immediately (with or without liquidity-related issues). But what to do if we want to buy or sell at a certain price, or, to be even more precise, to get our order executed at no worse than a certain price? Well, here comes the limit order.
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