When you buy or sell shares on the ASX, you choose between a market order (buy at whatever the current price is) and a limit order (buy only at or below your specified price). For liquid securities like major ETFs and large-cap shares, market orders work well. For smaller, less liquid stocks, limit orders provide important price protection.
Market Orders
A market order instructs your broker to buy or sell as soon as possible at the best available price. You do not specify a price — the system matches your order with the best opposing order in the book.
How it works:
- You place a market order to buy 50 units of VAS
- The system looks at the current ask (sell) orders and fills your order at the lowest available price
- If there are not enough shares at one price, multiple price levels may fill your order (partial fills at different prices)
Advantages:
- Simplicity — no need to specify a price
- Immediate execution on liquid securities
- Appropriate for ETFs and large-cap shares where bid/ask spreads are very tight
Risks:
- On illiquid stocks, the bid/ask spread may be wide — you could buy at significantly above the last traded price
- During volatile market conditions (market open/close, breaking news), prices can move rapidly
Limit Orders
A limit order specifies the maximum price you are willing to pay (for a buy order) or the minimum you will accept (for a sell order). Your order only executes at your specified price or better — it will never execute at a worse price than your limit.
How it works:
- You place a limit order to buy 50 units of VAS at no more than $92.50
- If the market price is $93.00, your order sits unfilled in the order book
- If price drops to $92.50 or below, your order executes
Advantages:
- Price certainty — you never pay more than your limit
- Protects against large bid/ask spreads on illiquid securities
- Useful when buying during volatile periods
Risks:
- May not execute if price does not reach your limit
- Could miss a buying opportunity if you set the limit too tight and price moves away
When to Use Each
| Situation | Recommended order type |
|---|---|
| Buying a major ETF (VAS, DHHF, VGS) | Market order — spreads are very tight |
| Buying a large-cap ASX share (CBA, BHP) | Market order — highly liquid |
| Buying a small or mid-cap stock | Limit order — spreads can be wide |
| Buying outside trading hours (next morning) | Limit order — price uncertainty overnight |
| Selling in a falling market | Limit order or stop-loss — prevents selling at terrible prices |
| Urgent sell (need to exit immediately) | Market order — guarantees execution |
Bid-Ask Spread Explained
The spread is the difference between the best buy (bid) price and the best sell (ask) price:
| Security | Bid | Ask | Spread |
|---|---|---|---|
| VAS (liquid ETF) | $92.48 | $92.50 | $0.02 (very tight) |
| Small-cap stock | $1.20 | $1.35 | $0.15 (wide) |
On VAS, the spread is $0.02 on a $92.50 unit — just 0.02%. A market order costs you a trivial amount.
On a small-cap stock with a $0.15 spread on a $1.20 price — that is 12.5% just to enter and exit the position. A limit order closer to the bid price is essential.
Order Expiry
Orders can be set to expire at different times:
- Day order — expires at market close if unfilled (most common)
- Good Till Cancelled (GTC) — remains active until filled or you cancel it (available on some platforms)
For most retail investors, day orders work well — review and re-enter if the order did not execute.
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Frequently Asked Questions
Should I always use a limit order when buying shares on the ASX? Not necessarily. For liquid ETFs (VAS, DHHF, VGS) and large-cap ASX shares during market hours, market orders are fast, simple, and the bid/ask spread is negligible. Limit orders add value when buying less liquid stocks, buying during high volatility, or placing orders outside market hours when prices may gap significantly at the next open.
What happens if my limit order is only partially filled? If there are not enough shares available at your limit price, only part of your order may execute. The unfilled portion remains in the order book (if GTC) or cancels at day’s end (if a day order). Partial fills still incur the full brokerage fee on most platforms — check your broker’s terms.
Is there a stop-loss order on the ASX? A stop-loss triggers a sell (or buy) order when the price reaches a specified level. Not all Australian retail brokers offer stop-loss orders — CommSec and some other platforms do. Stop-losses can provide downside protection but during fast-moving markets can execute at prices well below the stop trigger (known as slippage).
This article provides general financial information only. For advice tailored to your situation, speak with a licensed financial adviser. You can find one through the ASIC financial advisers register or MoneySmart.