At-the-market: A market order and also a broker’s instruction

What is an at-the-market execution?

The best definition for an at-the-market order can be the buy and sell of a stock or a futures contract at the prevailing market bid price or ask price when it was processed. It tells a broker to execute the buy or sell order immediately, hoping that the price is the best one available. However, even if we say this, the main focus is still on the execution. In a nutshell, at-the-market orders are market orders and brokers’ instructions to buy or sell the asset at the best price in the market. This instruction will instantaneously fill in just a few moments after it is received. The placement can be anytime as long as it is within the market hours. If we say this, what happens if it is received after market hours? The execution will happen as soon as the market opens.

At-the-market orders and execution?

Investors who want their transactions to be executed immediately at their preferred price usually use market orders. However, investors who use at-the-market orders and want to buy or sell their security right then and there must be willing to let go of the idea of having their desired price.

If the situation happens to be an extreme bull market, buy limit orders will not most likely proceed to execution because investors will prioritize the stocks they prefer even if they have to pay more premium to get them. And when we say buy limit orders, these are the orders that are only tradable at the limit price or lower. On the other hand, if the scenario is an extreme bear market, sell limit orders will not be filled. The price gap is lesser. Both of these example scenarios spark angst in both investors who want to make deals.

Should I or should I not engage with at-the-market?

Using at-the-market helps investors’ orders get executed on the dot. Not only that, the investor does not need to monitor the market constantly. This instruction is beneficial for trades that need to be executed on a specific date. However, this instruction also has its share of downsides. It does not have any control over the executed price, and there are also possibilities that you will not get the price you prefer. You can only hope. Should the asset with broad price swings be thinly traded, the process will be slow and expensive.

So, what do we think?

At-the-market is an order and an instruction to buy or sell securities at their winning price in the marketplace. Although we hope to get the best price, our primary focus will always be fast execution. So, there are chances that the price will not be the desired one. These market orders are the ones that investors usually engage with, especially the individual ones. It is true that you need to let go of the control over the price you can realize because there can be changes between the time the order was placed and executed. However, this risk is nothing compared to the risks that come with other securities and assets. For example, we have high-volume ETFs, large cap stocks, and more. These markets are massive, so the buyers and sellers are readily available.