What is a Market Order?

A market order is an order to immediately buy or sell an asset at the best price available. These orders require liquidity to be filled, executed based on the limit orders that have been placed in the order book. 

If you want to trade immediately at the current market price, using a market order is the best choice. For example, if the price of BNB rises quickly and you want to buy it immediately, you are willing to pay the current market price as long as you can buy BNB instantly. 

How Market Orders Work

Unlike limit orders that go into the order book, market orders are executed instantly at the current market price. Every trade has two sides, namely the market maker (maker) and the market taker (taker). 

By using a market order, you become a market taker and take the price determined by another party. For example, an exchange will match a buy market order with the lowest ask price in the order book, while a sell market order will be matched with the highest bid price in the order book.

Market orders require liquidity in the order book in order to fulfill instant demand. When market orders take liquidity from the exchange, you will be charged higher fees as a market taker when placing those orders. The difference in fees between makers and takers is clearly visible in Binance's fee list.

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Market Orders vs Limit Orders

In summary, a limit order is an order to buy or sell an asset at a certain price or better, with the possibility of being partially or completely filled. 

In the second case, if the order book cannot fulfill the order completely, the order will not be executed at all.

Market orders can only be filled with existing limit orders. Not everyone wants to take market prices when transacting or investing, therefore limit orders are a good alternative. 

Limit orders allow you to plan trades in advance without having to constantly monitor and trade live.

Aside from these basic differences, market orders and limit orders are appropriate for a variety of trading activities and purposes.

Limit orders are recommended when asset prices are very volatile. Placing a market order in a highly volatile market can produce unpredictable results due to price changes between when the order is placed and when the order is executed. 

Advantages of Market Orders

These small differences can affect profits and losses on trades. Limit orders ensure you get the price you want or better.

When an asset has low liquidity. Using market orders in these conditions can result in slippage. 

This occurs when there is little market maker volume on the order book, and orders cannot be filled easily around the current market price. As a result, you will get a lower average selling price or a higher average buying price than expected. 

On the other hand, a limit order will not be filled completely if slippage takes the price past your limit. Limit orders do not require direct interaction and can be placed in advance.

Thus, your strategy can still be executed even without direct involvement. This cannot be done with a market order.

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When to Use Market Orders?

Market orders are useful when filling the order quickly is more important than getting a specific price. In other words, use market orders only if you are willing to pay more due to slippage. 

If you are in a hurry or in an urgent situation, market orders can be a useful option.

However, if you are experienced in crypto and want to buy altcoins with Bitcoin, it is best to avoid market orders as they can pay more than you should. In this situation, a limit order may be more advisable.

When trading on highly liquid assets with a narrow bid-ask spread, a market order will provide a price close to or at the desired spot price. 

Assets with larger spreads have the potential to cause higher slippage .

Also read:

How to Manage the Risk of Loss in Crypto Trading

How to Diversify & Asset Allocation when Trading Crypto

What are Telegram Trading Bots and How Do They Work

DISCLAIMER: This article is informational in nature and is not an offer or invitation to sell or buy any crypto assets. Trading crypto assets is a high-risk activity. Crypto asset prices are volatile, where prices can change significantly from time to time and Bittime is not responsible for changes in fluctuations in crypto asset exchange rates.