Market orders and limit orders. You have probably stared at these options on your trading screen when trying to figure out which type of order to place. At first glance, these options seem like just buttons, but they are decisions that can make or cost you money.
Therefore, if you’re trading crypto, or even just buying a little Bitcoin here and there, you need to understand this choice. Luckily, this guide will help you understand how each order works and how to use them in different trading situations. That said, let’s dive right in.
KEY TAKEAWAYS:
- When you place a market order, you’re telling the exchange to fill your order immediately at the best available price.
- A limit order allows you to set the exact price at which you want to buy or sell a cryptocurrency.
- Use market orders when the market is moving fast and you want to make a small trade, where slippage will be minimal.
- Use limit orders when you want to buy at a lower price or sell at a higher price, and have identified a support or resistance level.
What Is a Market Order?
A market order is the simplest and fastest way to buy or sell cryptocurrency on an exchange. When you place a market order, you’re telling the exchange to fill your order immediately at the best available price. You don’t care what that price is, since you just want the transaction to go through as fast as possible. As such, the order would match with the buy or sell orders that are already in the order book.
Let’s say Bitcoin is trading at around $65,000 and you place a market order to buy 0.1 BTC. The exchange will fill that order using the lowest-priced Bitcoin available from sellers at that moment. So, if someone is offering to sell 0.1 BTC at $65,020, that’s what you’ll get.
Pros
- Instant execution.
- Simple to use.
- Best for urgent entries or exits.
Cons
- You may not get the price you see.
- Slippage can occur if the market is moving fast.
- Not ideal for large trades in low-liquidity markets.
What Is a Limit Order?
A limit order allows you to set the exact price at which you want to buy or sell a cryptocurrency. Unlike market orders, limit orders do not execute immediately. Instead, they wait in the order book until the market reaches your specified price. In other words, you’re telling the platform to fill your order if the price hits an exact amount or better.”
Let’s assume ETH is currently at $3,200, but you place your buy order limit at $3,100. Your order will sit there waiting, and if the price never drops to $3,100, the order won’t execute.
Pros
- Full control over the entry or exit price
- Avoids slippage
- Can be used to automate trading levels
Cons
- Execution is not guaranteed
- Requires more planning and patience
- You may miss market opportunities if price moves away
Maker vs Taker Fees
Every time you place a trade on a crypto exchange, you either add liquidity to the market (as a maker) or take liquidity from it (as a taker). This distinction matters because it affects how much you pay in trading fees. When you place a market order, you match with existing orders on the book. This removes liquidity and classifies you as a taker, and takers typically pay higher fees.
Conversely, when you place a limit order, you’re adding an order to the book. If your order is matched later, you’re a maker, which attracts lower fees. In fact, some exchanges reward makers with rebates. So, if you’re looking to save on fees and you’re not in a rush, limit orders can help cut your costs significantly.
Key Differences Between Market Orders And Limit Orders
Below is an overview of what differentiates market orders from limit orders.
| S/N | Feature | Market Order | Limit Order |
| 1. | Execution | Immediate | Only at your specified price |
| 2. | Price Control | No | Yes |
| 3. | Speed | Fast | Slow or delayed |
| 4. | Slippage Risk | High, especially during volatility | None |
| 5. | Fees | Usually higher as a taker | Usually lower as a maker |
| 6. | Success Guarantee | Guaranteed fill | Not guaranteed |
| 7. | Use Case | For urgent trades | For planned or strategic trades |
When to Use Market Orders And When You Shouldn’t
Market orders serve one purpose: speed. Here is a general guide on when and when not to use them.
Use Market Orders When:
- The market is moving fast, and you don’t want to miss the move.
- You’re trading in a highly liquid market like BTC or ETH.
- You’re making a small trade, where slippage will be minimal.
- You’re stopping a loss and need to exit quickly.
Avoid Market Orders When:
- You’re trading low-volume coins with thin order books.
- You’re entering a large position, and you could cause major slippage.
- The market is too volatile, and price swings are wide.
- You want control over your buying or selling price.
Read Also – An Introduction to Crypto Arbitrage Trading Strategies
When to Use Limit Orders And When to Be Careful
Limit orders are your tool for planning trades with precision, and these are the best conditions to harness or put a hold on them.
Use Limit Orders When:
- You want to buy at a lower price or sell at a higher price.
- You’ve identified a support or resistance level.
- You’re not in a rush to enter or exit a trade.
- You’re placing large trades and want to avoid slippage.
- You’re setting up automated entry or exit zones.
Be Careful With Limit Orders If:
- The market never reaches your price because you may miss the trade.
- You place a limit order and forget about it because it fills when the market is crashing or pumping unexpectedly.
- You place a price too far from the current market, leaving your funds stuck in open orders.
Generally, it is advisable to set reminders or expiration times for limit orders if your platform allows. Furthermore, always double-check the decimal points and zeros of your price input to avoid typographical errors.
Mistakes to Avoid So You Don’t Learn the Hard Way
Trading is already risky enough, so don’t let simple execution errors cost you money. Here are common mistakes to avoid when using market and limit orders:
- Using market orders on illiquid coins or altcoins with thin order books.
- Placing huge market orders, which creates massive slippage and higher costs. A better approach is to break large trades into smaller limit orders.
- Not using stop-loss with market orders.
Conclusion
Choosing between market and limit orders is a reflection of your strategy, discipline, and risk tolerance. Moreover, it depends on what you’re trying to do, how fast you need to do it, and how much price movement you’re willing to tolerate. So next time you open your trading screen, don’t just click any of them randomly, choose based on your specific goal for that trade.
References
- osl.com – What Are Limit, Market and Stop Orders in Crypto Trading?
- bitpanda.com – What are market orders, limit orders, stop limit orders?
- investopedia.com – Market Order vs. Limit Order: What’s the Difference?
