Crypto Limit Order vs Market Order

What are the differences between crypto limit order and market order? Trading and investing in crypto coins is quite similar to trading stocks and shares though they are not the same.

Typically, when you deal with crypto, you place an order to buy or sell and there are two basic options to choose from while execution. These are:

  • Placing the order ‘at the market’ which is called the Market Order. These transactions are executed quickly and are usually done at the prevailing market price of the crypto asset.
  • Placing the order ‘at the limit’ which is called the Limit Order. In this form you set the minimum or maximum price at which you want to buy or sell the crypto coins respectively.

Market Orders typically offer a greater probability of the particular order to go through. However, it is not guaranteed because these orders normally depend on the availability.

In a Market Order the cost of the security is less important to the speed of execution of the trade.

However, Limit Orders, on the other hand, primarily deals with the price of the asset.

This means that a transaction will not happen when the value of the security rests currently outside of the limits set in the Limit Order.

In addition to the above, there are also a lot of other aspects in which you can differentiate between Market Order and Limit Order, and, chances are, you may not know about those differences.

Crypto Limit Order vs Market Order – The Differences

Crypto Limit Order vs Market Order

Just as it is in stocks, all crypto coins are not created equal.

Moreover, the crypto market being extremely volatile, prices of the crypto coins can fluctuate drastically and rapidly.

Therefore, if you choose the wrong moment to buy or sell your asset, you may lose big.

That is why it is very important for the new crypto investors especially to understand the difference between Market Order and Limit Order, two of the major order types.

Well, there is nothing to worry about if you do not know the differences between them because in this article you will find all those dissimilarities entailed.

Knowing these differences will help you to choose the right approach according to your preferences and needs. Here they are.

Basics

As you may know, all trade orders involve either buying or selling of assets at a specific price.  A Market Order is the simplest of the two order types.

These orders are placed by traders usually when they need to be certain about the execution of a trade.

It is simply a request made by the crypto trader or investor to sell or buy a particular crypto coin at whatever the prevailing market price of it is. Therefore, Market Order is instant.

On the other hand, in the basic sense, a Limit Order is an order to buy or sell a crypto asset at a particular price when it is reached.

Therefore, Limit Orders are not instant because the assets are not bought or sold at whatever price is available.

Typically, traders place Limit Orders in order to limit price risks and avoid incurring huge losses in a trade.

Working Process

Market Orders are executed instantly, or at least as close to instantly as possible. If the order cannot be filled immediately, the trade will not be executed.

However, when the order is completed and the market transaction has been made, this is referred to as ‘the order has been filled’ by the traders.

Ideally, there are two types of Market Orders namely, Buy Market Orders and Sell Market Orders.

On the other hand, a Limit Order is filled only when the price defined is matched, or is even better in the case of sell orders.

Usually, a Limit Order may result in an immediate fill if you set the price for buys higher than the prevailing market price of the assets or lower than that in the case of sell orders.

This is because there can be much better prices available in comparison to the limit price set by you.

Trading Basics

If you are placing a Market Order yourself through any online trading platform, which is the most common way of crypto trading, your order generally will be fulfilled immediately when you hit the buy/sell button.

Read Also:  8 Differences Between Coinmama and Uphold

If you wish to place a Market Buy Order it will then be executed at the closest ask price, which is the price at which a user is willing to sell the crypto coin for.

And, on the other hand, if you place a Market Sell Order the trade will be executed at the nearest bid price, which refers to the price at which a person is willing to buy that particular crypto asset for.

On the other hand, if you wish to place a Buy Limit Order, your trade will be executed at the limit price or lower than that.

However, if you place a Sell Limit Order your trade will be executed at the limit price specified or higher than that.

Limit Orders are very useful for an investor who does not trade actively because it ensures that no one receives less or pays more than the price set in the Limit Orders.

Significant Disadvantage

One potential disadvantage of Market Order is that when you place such an order on a crypto exchange it indicates that you agree to your order being filled by the exchange at the best price available at that specific time period.

This means that you may lose out big if you are a price-sensitive trader and your Market Order may be filled first even if you agree to a higher price.

This is because, according to the agreement, Market Orders for a particular asset are filled first by default at the best available price in the market.

On the other hand, in the case of Limit Orders, the most significant disadvantage is that your order will not be filled if the price mentioned in the order is not met within the time period mentioned in the order.

This means that there is no buyer or seller interested in your particular crypto coin at that specific point of time.

Moreover, and probably more importantly, the timing is an important factor to consider when you place Limit Orders since every such order recorded in the Order Book of the crypto exchange is time-stamped.

This means that the trades that were placed first and recorded in the Order Book will have preference over those orders that are placed and recorded later even if the trades come with a similar limit price.

Fees

The most significant advantage of Market Order is that you will know for sure that your order will always go through and there will be no extra fees charged for it.

You will simply have to pay for the trading fee once since the entire order will be executed all at once.

On the other hand, in the case of Limit Orders you do not have this benefit because it may need to make more than one transaction to fill the whole order.

Limit Orders may also need you to pay additional fees since the orders may not be executed all at once. That is why it is important that you find a brokerage that charges low or no trading fees.

Control

You will usually have no control over the price you need to pay to buy a crypto coin or receive the amount when you make a sale and when you place a Market Order.

If the price moves to the right suddenly before you can place your order, you may end up paying more while buying or receiving less when you sell than you expected.

On the other hand, when you place a Limit Order, you will actually have total price control because your trade will not go beyond the maximum target price while buying and the minimum target price while selling your crypto coins.

This will save you and your trade from experiencing sudden and wild price changes.

Steps to Follow

While placing Market and Limit Orders, the steps to be followed are pretty much the same.

In order to place your Market Order, the steps that you need to follow include:

  • Going to the Order Form section
  • Selecting the Market tab under it
  • Choosing Buy or Sell
  • Entering the size of the order and price and
  • Confirming your order.

The size of your Market Order can be set in any currency that is supported.

As for placing your Limit Orders, the steps to follow include:

  • Going to the Order Form section
  • Select the Limit tab under it
  • Choosing the Buy or Sell option
  • Entering the size of the order and the price of it and
  • Selecting Place Order to submit.
Read Also:  Crypto LIFO vs FIFO Accounting Methods

If you go to the Advanced Settings, you may also select any one between Post Only and Allow Taker (more on it later).

Some Other Differences

A Market Order is used by the crypto investors when they want to enter or exit a position straight away irrespective of the price.

On the other hand, a Limit Order is typically based on the price specified in the order.

A Market Order guarantees that the trade will be completed but does not guarantee that it will be done at the price desired.

On the other hand, if you place a Limit Order you will be happy with the price you get, provided the order is executed.

Which is Commonly Used – Crypto Limit Order or Market Order?

Ideally, the current priority guideline is considered while processing an order even if you place a Market Order or a Limit Order on your trade.

The difference is that the features of each of these two order types will be taken into account while processing your trade.

Both these order types come with their own pros and cons and features that will provide a different outcome.

That is why it is important to know which is what before you place an order.

When it comes to deciding which type of order you should use while trading your crypto coins, it may seem to be a daunting task, especially if you are a newcomer to the crypto space.

The best advice for a beginner is to place a Market Order. This is because Market Orders are simpler and at the same time these ensure that your trade is executed as desired.

Ideally, when you place a Market Order, your trade may be affected by the market fluctuations between the period when the order is placed and the trade is executed.

This is a serious threat if you are dealing with larger orders since these take a much longer time to be filled in comparison to smaller trades.

And, if it is fairly large, it can even move the market all by itself.

In order to determine whether or not you should execute a Limit Order or a Market Order while buying or selling crypto coins, you can use an easy litmus test.

Or, if it is of utmost importance that you complete a trade then placing a Market Order will prove to be the best option for you.

On the other hand, if you intend to obtain a specific amount of money on your purchase or sale of crypto coins then placing a Limit Order will be more feasible.

Remember, your preferences and needs may change over time even for the same type of crypto coin and therefore you should not be rigid about your choice.

If you really have to, the best approach is to set a Limit Order initially when you buy a crypto coin at an attractive price.

If, in case, the trade is not executed, you can then cancel the Limit Order and instead place a fresh Market Order.

Though Market Orders do not promise a price, these are quite good options to use if you deal quite frequently with coins that are very liquid, well-established, and come with a large cap.

However, at this point, it is good to remember that Market Orders for the assets traded which are not bought or sold often may take a long time to fulfill.

As for the Limit Orders there is one good thing about it and that is the risks associated with it are pretty less because there is no place for emotions in the equation.

However, the bad news about Limit Orders is that there is a high chance that you might miss out on a much better trading opportunity.

As for the Market Orders, you must keep in mind the fact that once you place these orders you cannot cancel them because they will be filled almost instantly.

Therefore, be very sure before you place a Market Order while buying or selling your crypto assets.

Also, Market Orders can be filled partially at several places of your order and each part of it will be shown in the fills panel.

In order to prevent your Market Order from causing an excessive slippage, you should choose a reliable and reputed crypto exchange that offers Market Protection Point for all Market Orders, especially if you are willing to make larger trades.

A significant feature of the Limit Orders is that you can use it to set your future trades and not only for your trades today.

Read Also:  13 Differences Between Crypto Wallet and Exchange

You can set the Limit Order further than the market price and even create an automated instruction for the order to be executed as and when the target price is achieved in the future.

However, as said earlier, Limit Orders can also lead to partial orders being dynamic in nature and therefore can be executed only when the pricing conditions are fulfilled even by a portion of your trade.

Nevertheless, you can avoid this situation by inserting specific restrictions on your Limit Order such as ‘fill or kill’ or ‘all or none.’

However, the problem with this is that there is a high chance that your trade will not go through at all.

In comparison, in the case of Market Orders there can be large price movements which may affect if your trading volume is low and with coins that have a smaller cap.

Also, unusual events and market crashes may also result in dramatic price swings for the coins with larger caps and as a consequence the trading price may be far different than the one you hoped to be.

As mentioned earlier, while placing your limit Orders you can select either Post Only or Allow Taker option in the Advanced Setting.

If you select the Post Only option, it will ensure that the Limit Order is not only posted in the Order Book but also sits there.

If the order is filled you will be charged a Maker Fees.

On the other hand, the whole order will be annulled if any part of it is executed immediately due to the price of it corroborating the set price by the matching engine.

This is a useful feature because it will prevent the order from being subject to Taker Fees, if preferred.

And, when any part of your order is at a price so that it is executed immediately and you have chosen the Post Only option, you will be charged a Taker Fee when it is executed.

As for the remaining portion of your order, it will stay on the Order Book and you will be charged a Maker Fee when it is filled.

On the other hand, choosing the Allow Taker option will ensure that your order is executed whether or not it crosses the spread so that the existing order can be filled.

And, if any part of the order crosses it eventually, that particular portion will be assessed on the basis of the Taker Fee rate.

If you wish to place a Limit Order on your trade, make sure that you are also aware of the effects of the bid-ask spread on it.

This is important because in the case of a Limit Order for buy, it is the bid price and the ask price both that must match with the specified price of the trade to be filled.

Market Orders, on the other hand, are the most preferable option for the long-term crypto investors who will buy and hold their assets for a considerably long period.

This will allow them to make a considerable profit in the long-term horizon.

However, Limit Orders are much more complicated as compared to the Market Orders in execution which is why they can fetch higher brokerage fees as well.

However, it can still save you some money if you take the buy and hold mentality while making your investment.

This will also ensure that you save on capital gains taxes since you will not be selling your crypto assets out of the way as well as save on the trading commissions.

All these will lower your trading costs significantly while the whole time you will be able to stay invested and see the compound growth do its magic.

Conclusion

Though placing an order on your crypto trades is a matter of personal preference and choice, it is vital to know the differences between Market and Limit Orders to choose one correctly. That is what this article is all about – the differences.