Market order

What is a Market Order?

A market order is a basic term you'll come across in both trading and financial factoring. It refers to an instruction to buy or sell a financial instrument, like stocks or factored receivables, immediately at the best available current price. Since a market order does not specify price, it prioritizes speed and is executed at the current market rate.

Understanding Market Orders in Factoring

In the context of financial factoring, a market order isn't about trading shares. Instead, it relates to the rapid selling of invoices or receivables. Factoring companies use the term to describe the quick sale of a business's invoices at a discount to a third party, called a 'factor'. This enables businesses to get fast access to cash, rather than waiting for the payment terms of 30, 60, or 90 days.

Why Use a Market Order?

Businesses opt for market orders because they need cash quickly. Liquidity is often more important than getting the highest possible price for the invoice. They trust the factor to provide a fair rate based on the current market conditions.

Advantages and Disadvantages of Market Orders

Market orders offer the advantage of immediacy, which is crucial when companies require urgent cash flow. However, the disadvantage is that the price of the invoice might be lower than if sold through another method that considers a set desired price or is negotiated over time.

How Does a Market Order Work in Factoring?

Let's break it down: A business sells its invoice to a factor through a market order. The factor immediately provides the funds, minus a discount fee. This transfer of cash is typically done within 24 hours, making it a swift solution for businesses needing to balance their liquidity.

The Bottom Line on Market Orders

A market order is a vital tool for businesses that use factoring services to maintain a steady stream of cash. It's a tradeoff - speed over maximum revenue - but when funds are needed quickly, market orders in factoring can be the most efficient choice.