Market Order Impact

A market order is an instruction to buy or sell an asset immediately at the best available current price. Because it prioritizes speed over price, a market order will consume the available liquidity at the top of the order book until the entire order is filled.

If the order size is large, it may move through several price levels, resulting in an average execution price that is significantly worse than the initial market quote. This is known as market impact.

In highly liquid markets, the impact is minimal, but in thin markets, it can lead to significant slippage. Traders use market orders when they need immediate execution regardless of the cost, but they must be aware of the potential for negative price slippage.