Reviewed by Jan 05, 2021| Updated on
At-the-market refers to a price at which a person places a buy or sell order for a futures or stock, whose price is the same as the prevailing market bid price or ask price. An individual places an at-the-market order during the market hours and also executes them within seconds.
In case an at-the-market is received after the trading hours for a day, the same will get executed immediately after the market reopens the next day.
An at-the-market order is generally preferred when an investor wishes for immediate execution for a buy or sell transaction. An investor choosing an at-the-market order chooses the prevailing market rate and readiness of execution over a good choice of price and profit. Here, investors generally end up paying high prices.
In a full-fledged bull market, the orders for buying certain securities having buy limit orders are not carried out even if investors are ready to pay a premium for it. In a similar way, sell orders for securities having sell limit are not carried out during a bear market phase. In either scenario, investors lose potential gains a market could offer.
The risk in at-the-market orders is quite high, especially for trades in small-cap stocks, illiquid stocks, and stock prices carrying wide spreads. In a case where the gap between the bid price and ask price is wide, it is ideal for an investor to choose the last sale price for reference to determine whether the order is right or not.
Many times an investor can enter into a large trade deal using the at-the-market order strategy which enables the deal within a particular date. For example, a fund manager may want to finish a deal before the identified stock becomes ex-dividend so as to receive the dividend. If there are any limits placed on the order, the same may not get executed.
Investors may or may not wait for the right price to buy a stock. While some investors research well and invest waiting for long-term returns, certain others want to trade it big. They cannot watch over the prices and wait for their chance. Such investors place at-the-market orders to benefit from a present situation.