What Is a Market Order and How to Use It
5 min read · · Korean original
Contents 8
A market order is one of the simplest order types for buying or selling an asset instantly. With a single click, the moment you submit your order it is matched against limit orders currently sitting in the order book, and the trade is complete.
What Is a Market Order?
A market order is an order to buy or sell immediately at the best available price. For the order to be filled, there must be enough liquidity in the market. Market orders are filled against limit orders in the order book.
Market orders are useful when you want to trade as quickly as possible at the current market price. For example, if the price of Bitcoin is rising sharply and you want to chase the rally, you can use a market order.
When Should You Use a Market Order?
Above all, market orders are useful when getting your order filled immediately matters most. There may be moments when an instant fill is more important than trading at a specific price. Market orders are typically used when the price is rising or falling quickly.
When trading an asset with a narrow bid-ask spread and high liquidity, a market order lets you trade at or close to the expected spot price. However, be careful: market orders can make you pay more than necessary (fees and slippage). We'll look at this in more detail below.
How Does a Market Order Work?
Unlike limit orders that are placed in the order book, a market order is filled immediately at the current market price. For example, when you place a market buy order, it is matched with the lowest sell limit order in the exchange's order book. Conversely, a market sell order is matched with the highest buy limit order.
Market orders require sufficient liquidity, and because they take liquidity from the exchange, fees may be higher.
Advantages of Market Orders
Market orders have the following advantages.
- They're easy to use. Market orders are handy when trading highly liquid, large-cap crypto assets such as Bitcoin or Ethereum.
- You can buy or sell exactly the amount you want. When you need to close out your entire position or enter a position quickly, a market order will almost always let you fill the quantity you want fast.
- You can trade instantly. When execution is urgent (e.g., jumping on the last leg of a pump), a market order lets you trade right away.
Disadvantages of Market Orders
The disadvantages of market orders are as follows.
- Slippage can occur with low-liquidity assets. With illiquid assets, a market order can cause unexpected price movements. As a result, your trade may be filled at a different amount than you expected.
- You can't plan trades in advance. Unlike limit orders, market orders can't be scheduled. So to submit a market order, you have to log in to the exchange yourself and click the button. (*To make up for this drawback, you can use advanced orders such as stop-loss and take-profit orders)
Market Orders vs. Limit Orders
What are the differences, pros and cons of market orders and limit orders?
| Market order | Limit order |
|---|---|
| Trades the asset at the market price | Trades the asset at a set price |
| Filled immediately | Filled only at the limit price |
| Must be placed manually | Can be set up in advance |
A market order is an order type that instantly buys or sells an asset at the best price available under current market conditions. However, if there isn't enough limit order liquidity in the order book, the order may be filled at a different price than expected, resulting in slippage. Market orders have the advantage of being fast, simple, and usually filled completely. However, large orders may incur additional slippage and fees.
A limit order is an order to buy or sell an asset at a predetermined price. The exchange fills the order only at the set price, and the order may be partially filled or not filled at all. Limit orders are well suited to volatile or low-liquidity markets and can help you avoid slippage.
2 Cases Where You Should Use a Limit Order Instead of a Market Order
Traders generally use limit orders more often, since fees are lower and they can trade at the price they want. In the following cases, a limit order may be a better fit than a market order.
- When the asset's price is highly volatile: Using a market order in a volatile market can lead to unexpected results as the price swings. A limit order lets you trade at the price you want.
- When the asset has low liquidity: Using a market order in an illiquid market can cause slippage. In other words, because there isn't much order volume in the order book, it becomes hard to get filled near the current market price. A limit order, on the other hand, isn't affected by slippage and lets you execute the trade at the market price you want.
Final Summary
A market order is one of the simplest and fastest ways to buy and sell an asset. However, you need to be careful using market orders when trading volume is low or volatility is excessive. For more planned and safer trading, it's a good idea to actively use limit and stop orders to build the best trading strategy.
