Market Order vs. Limit Order in Crypto

[TL; DR]

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Trading in cryptocurrency involves the buying and selling or exchange of digital assets.

Like in stock trading, you need to meet certain conditions and put some settings in cryptocurrency trading. One of those market settings is the trading order.

A trade or trading order is an agreement that binds an individual to trade a digital asset at a particular price or price range.

The trading order includes market order and limits order.

The market order is an immediate order where the digital asset is sold for the best available price.

A limit order sets the cryptocurrency's price at a benchmark and sells it as soon as it falls to that benchmark.


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As a trader or investor in the blockchain, you are conscious of the market and closely monitor the rise and fall of the price of digital assets. To ensure you do not lose out on your holding, you place a market order or limit order for your trades.

As a crypto enthusiast or trader, you would be familiar with the trading orders. However, for those who are just joining the community, what are market orders and limit orders?

What Is A Market Order?

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A market order is an instant agreement whereby the trader buys or sells the digital asset for the best available price at the moment.

In a market order, you as the investor or trader instantly give up your cryptocurrency in exchange for the highest price at the moment via the trading platform.

When a trader buys or sells a cryptocurrency and the order has been completed, traders will mark it as " order has been filled."

This shows that the transaction occurred instantly or was executed close to immediately.

The market order is very dynamic. As a buyer on the blockchain network, if you place a market order and agree to buy at the best possible price, you will likely buy the digital currency for a lower price.

However, if you are a seller and give a market order, you are selling immediately at the currency price of the digital asset. Most times, the price has dropped.

For instance, if, as a trader, you place a market order and at the moment, you see a bitcoin (BTC) for $6000 per BTC on the blockchain network, the trade order allows you to go for it instantly at that current price.

If by tomorrow, the price falls to $4000, you can give another market order and buy the same unit of crypto that you purchased earlier at $6000 for $4000.

What Is The Limit Order?

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A limit order is another trading order in the crypto market.

A limit order is a trading order or agreement to exchange a cryptocurrency at a specific price.

This order allows the collector of the digital asset to minimize the price risk. You know that your cryptocurrency must not go below a particular price while still having it in your blockchain wallet.

The exchange on a limit order is time-stamped; if you set your cryptocurrency at a special price and over the period, no buyer shows interest, maybe because the same unit of token is available for less by another seller at the end of the time frame, your order will not be filled.

Also, there is the "first come, first serve" preference in a limited order. If multiple sellers have the same digital asset and list them for sale at the same price, preference is given to the trade that was first placed.

The trader who first gave the order and entered into the trade agreement will have their cryptocurrency sold first.

The benefit of a limit order is that if, as a seller, your order that your digital asset is sold at a specific price, and a seller shows interest. In contrast, the cryptocurrency price has not fallen to your specified price; the order will be filled immediately after the buyer completes the transaction.

So it does not necessarily mean that your cryptocurrency must fall to the price you set it before it can be purchased; this trading order just means that it should not go below that price.

While both market and limit orders are types of trading orders in the cryptocurrency market, they do not meet the same conditions. The differences that exist between both trading orders are ;

Differences Between A Market Order And Limit Order

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The market order is an instant or immediate exchange once you place the order in the market trading, the buying and selling immediately.

However, in a limited order, the cryptocurrency exchange does not take effect immediately. Until the token reaches or declines to a specific price, the agreement to buy or sell does not take effect.

The risk in limit order is that if the actual price or value of the cryptocurrency does not fall to the limit order guidelines, the order may not be executed on the blockchain.

That is, if you set the limit order to sell your Solana (SOL) at $300 per unit and the market price stands at $200 till your listing period elapses, that implies that your order will not be filled or executed.

Albeit, the risk associated with a market order is that the seller may run at a loss, and in other instances, the buyer will suffer the "bear" period.

For instance, if, as an investor, I buy a Binance coin (BNB) at $200 per unit, and by the time I make the market order, the current market price is $150. That is a loss of $50 to my wallet.

If, as a trader, I buy the same BNB for $150, hoping that it will rise and I will make a profit, but by the time I make my market order, the market price drops to $100, that is a loss of $50 to my wallet.

Conclusion

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Experts in the crypto market have divergent views on which trading orders are best for a trader. Both market and limit order involves taking risks.

While every trader is out to make a profit, it is essential to study the market trend before deciding which trading orders to give.

As a trader, it is in your best interest to compare prices with other traders on blockchain before setting your market or limit order. This will help to facilitate trading as soon as possible.



Author: Valentine. A, Gate.io Researcher
This article represents only the researcher's views and does not constitute any investment suggestions.
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