What Are Market Order And Limit Order In Cryptocurrency?

A market order executes quickly at the current market price. It deals with the execution of an order. Market Order ensures quick transactions but potentially at varying rates. Limit orders, on the other hand, allow the traders to specify the price of the assets at which they would want to buy or sell the asset. 

It offers more control over the execution price but does not complete the transaction instantly. Market order And limit order are crucial in navigating the fast-paced and volatile cryptocurrency market. It also affects how traders manage their risks and achieve their trading objectives effectively.

Key Takeaways

• Differences between market order and limit order in crypto 
• Advantages and disadvantages of Market Order And Limit Order
• What is a stop-limit order, and how does it work?

What is a Market order? How does it work?

Market orders are placed by traders if they want the trade executed at the current market price. Market order execution takes place instantly. Therefore, it is simply an order to sell or buy a cryptocurrency like Bitcoin at whatever its current market price is.

The market orders are supposed to be executed instantly. When a market order has taken place and it has been completed, traders refer to it as the “trade has been filled”. A market order is always filled instantly. Else, it will not be executed. There are either sell market orders or buy market orders.

One potential disadvantage of the market orders in the exchanges is that you are giving the right to the exchange to execute the order at the current price. It also comes with a limitation that the traders who agree to higher prices have their market orders executed first, and the price-sensitive traders lose out on their opportunities. 

In contrast, market orders are filled first by the default. It is because the traders who have placed the orders, have agreed to the best available price of any particular cryptocurrency asset.

What are the Advantages and Disadvantages of Market Orders?

Market orders in crypto trading have the following advantages.

• Swift Execution: Market orders give an advantage to the traders to execute their assets instantly. They are filled instantly at the best available price and ensure the trade is executed without any uncertainty or delay. 
• Higher Chances of Execution: Unlike the limit orders, which might not get executed if the market does not reach the specified price limit, market orders have higher chances of being executed. They are advantageous for highly liquid markets with significant trading volume.
• Simplicity: Placing a market order is convenient and easy. The traders just have to specify the quantity they want to get. The rest is done by the exchanges.
• Best for the fast-moving markets: Market orders are best suited for the volatile and fast-paced markets. They enable the traders to capitalize on immediate trading opportunities and capture favorable price movements.

Just like the market orders have advantages, they have some disadvantages too. Downsides to market orders are below.

• Price Variability: The execution price of a market order is dependent on the price fluctuations. During phases of low liquidity or in volatile markets, the actual price at which the order is placed might vary with the expected price.
• Slippage: Slippage is a situation when a market order is executed at a different price than expected. This happens only in the highly volatile markets or when there is a significant shift in the market demand and supply.
• Limited Price Control: The market orders prioritize speed over price. Hence, traders will have little control over the exact execution price. This might not be suitable for those who wish to execute the trades at specific price levels.

What is a Limit Order? How does it work?

While a market order is a type of order which the traders place to buy or sell a crypto asset immediately at the current market price, a limit order, on the other hand, is an order to buy or sell a specific asset at a particular price. The limit orders are placed to limit the price risks. 

The traders must note that if the price is higher than the current price for buys or lower for sell, it might cause an immediate fill as there is a better price available than the specified limit price.

One major disadvantage of limit orders is that if the limit price is not met by the interest buyer or seller within the specified period, the order will not be executed or filled. Secondly, timing is a crucial factor for placing limit orders. Every order on the exchange is placed with a timestamp. Therefore, an order which was placed first takes precedence over the orders which are accepted later. Even if two orders have the same limit price, one which is placed earlier is filled first.

What are the Advantages and Disadvantages of Limit Orders?

Limit Orders in the crypto exchanges have the following advantages.

• Price Control: The limit orders offer precise control to the traders over the price at which they enter or exit a trade. This helps them avoid unexpected price fluctuations and ensures the trade is executed at the preferred price levels.
• Lesser impact of market volatility: The limit orders can protect the traders from sudden price swings in the highly volatile markets. By setting limits for the orders, the traders can reduce the risk of executing orders at unfavorable prices during phases of high volatility. 
• No immediate execution: Unlike the market orders, which execute instantly at the market prices, the limit orders allow the traders to wait till the asset reaches a specific price. This enables traders to conduct thorough market analysis and make informed decisions.
• Partial Filling: If the market reaches a specific price but does not have enough liquidity to fill the entire order, limit orders might be partially filled. It ensures that the traders get some portion of their desired executed trade.

Similarly, the limit orders also have some disadvantages. They are as follows.

• Chances of Non-Execution: The limit orders might remain unfulfilled if the market never reaches the specified price level. It might lead to missed trading opportunities if the price does not match with the trader’s expectations.
• Time Sensitivity: In fast moving markets, the specified price limit orders might get outdated very quickly. In such cases, the traders might have to adjust the limit orders frequently to adjust to the market conditions. 
• Limited Liquidity: The large limit orders might not be executed entirely or cause slippage in less liquid markets. It greatly impacts the final execution price of the trade.
• Opportunity Cost: While the limit orders might protect a trader from adverse price movements, they can also cause a trader to miss out on the specific opportunities that market orders could have captured.

What is a Stop Limit Order, and how does it work?

While the market orders are set to be filled immediately at a current market price, limit orders are placed to be filled on a specified set price within a time frame. This type of order is called GTC or “good ‘til canceled”. Besides the limit orders and the market orders, we will look at another type of order known as the stop limit order.

ALSO READ: Risk-Reward Ratio: What Is It And How Is It Calculated?

Stop Price and Stop Limit Order

A stop limit order is an advanced type that is not executed instantly. It is because the trader limits the price at which the order will be executed. Therefore, a stop limit order includes two prices: a stop price that converts the order to a buy or sell order. The other one is limit price, the maximum price at which a trader is willing to buy or the minimum price at which the trader is willing to sell.

First, a stop order is active. A stop order gets triggered when a specific price for buying or selling an asset is hit or crossed. It will be put into the order book only when the stop order is triggered at a specific price and becomes visible to everyone.

It is also called a “stop-limit order” because the traders want to control the risk involved in the high volatility of the Bitcoins. The trader might want to sell Bitcoin before it falls below an expected price. Once the stop price is triggered, the order gets filled immediately if liquidity is available in the order book. A stop-limit order is suitable for those traders who are very price-sensitive and want to protect their assets against high market volatility.

ALSO READ: What Is Liquidation In Crypto And How To Avoid It? (Explained) 

Conclusion

Traders can use two types of orders while investing in cryptocurrencies on crypto exchanges. They are market orders and limit orders. The market orders get executed right away at the current market price at which they are placed. Limit orders, on the other hand, won’t execute until the market reaches the price the investor is looking for. The limit orders won’t fill in some cases because the market price might never meet the limit price specified. 

Both types of orders have their advantages and disadvantages. Traders must determine market conditions and weigh their requirements before deciding which order type to use. In a highly fast-moving and liquid market, market orders might be a preferred choice for crypto traders. In contrast, limit orders may be preferable in volatile or less liquid markets. It can offer more control over the execution prices and protect the traders from significant price movements.

Mudrex stands out as the premier app for crypto trading, offering traders a strategic advantage with its robust platform. By leveraging Mudrex, traders can optimize their trading strategies beyond conventional markets and limit orders, enhancing their profitability and market insights. Download the app from the Google Play Store now and begin trading on your favorite crypto assets. 

FAQ

1. Which one is better: Market Order or Limit Order?

Your trading goal will determine your choice between market orders and limit orders. The market orders get executed instantly at the current price while limit orders have more control over the price. But they might not be executed immediately.

2. How to buy crypto with a limit order?

When you place a limit order, you specify how much crypto you wish to buy or sell and at what price. The order is then sent to the order book which will be executed once the market price reaches the indicated price.

3. What is the downside of market order?

Market orders mean that the assets are purchased and sold at the market price, meaning at the current price. One of the biggest drawbacks of market orders is that you can’t specify the price of the trade.

4. Do limit orders have fees?

Since the limit orders are considered to be more complicated, they might have higher fees and also cost more than the market orders.

5. Can you sell crypto as a limit order?

Yes, traders can sell crypto as a limit order. It allows the traders to sell a cryptocurrency at the specified market price or better.