In an auction, a market order is matched against a limit order at what price?

In an auction, a market order is matched against a limit order at what price?

• A. Reference price
• B. Market price
• C. Limit
• D. Mid price

Answer: (C)

A market order is about immediate execution, so it forgives no delay and takes whatever price is available from the orders resting in the book. If there is a limit order on the other side, that order specifies the price the trader is willing to trade at. The market order will fill at that price—the limit price of the resting order—because that is the best price currently available for that side of the trade. If the market order is large enough to sweep through several limit orders, it will execute portions at their respective limit prices, starting with the most favorable for the market order. That’s why the price is the limit price, not a reference price, not the current market price, and not the mid price. The limit order fixes the execution price for the match.

A market order is about immediate execution, so it forgives no delay and takes whatever price is available from the orders resting in the book. If there is a limit order on the other side, that order specifies the price the trader is willing to trade at. The market order will fill at that price—the limit price of the resting order—because that is the best price currently available for that side of the trade. If the market order is large enough to sweep through several limit orders, it will execute portions at their respective limit prices, starting with the most favorable for the market order.

That’s why the price is the limit price, not a reference price, not the current market price, and not the mid price. The limit order fixes the execution price for the match.