Two ways to ask for a trade
When you place a trade on an exchange, you choose how it should be executed. The two basic choices are a market order and a limit order. Both are instructions to the exchange, and they differ in what they prioritise: certainty of getting the trade done, or control over the price.
Market orders
A market order says “buy (or sell) this amount now at whatever the best available prices are.” It is matched immediately against orders already resting on the other side of the book.
The advantage is speed and near-certainty of execution, provided there is enough liquidity. The disadvantage is that you do not control the price. If your size is larger than the quantity at the best price, the order continues to the next level, then the next.
An illustration with invented numbers. The asks in the book are:
- 2 coins at 100
- 3 coins at 101
- 5 coins at 103
You place a market order to buy 6 coins:
- 2 coins at 100 = 200
- 3 coins at 101 = 303
- 1 coin at 103 = 103
- Total cost: 200 + 303 + 103 = 606
- Average price: 606 / 6 = 101.00
Your average fill is 1% above the best ask of 100, because you consumed three price levels. That difference is slippage. In a thin or fast-moving market it can be much larger, and the price you saw when you clicked may be stale by the time the order arrives.
Market orders also generally pay the bid-ask spread, since a buyer takes the ask and a seller takes the bid.
Limit orders
A limit order says “buy no higher than this price” or “sell no lower than this price.” You choose the price, and the order either fills at that price or better, or waits.
If your buy limit is at or above the current best ask, it will match immediately, much like a market order but with a ceiling on what you will pay. If your buy limit is below the best ask, it joins the order book as a resting bid and waits for sellers to come down to it.
Using the same book, a limit buy of 6 coins with a limit of 101 would fill 2 at 100 and 3 at 101, and then rest with the remaining 1 coin still unfilled, since the next ask of 103 is above your limit. You would have paid 200 + 303 = 503 for 5 coins (average 100.60), but you would not have your full 6.
The advantage of a limit order is price control. The disadvantage is that execution is not guaranteed. The market may never reach your price, or may touch it and move away before your order is filled. A limit order that does not fill can mean missing a move entirely, while a market order guarantees participation but at an uncertain price.
Partial fills
Orders do not always fill in one piece. A limit order may be partly filled as trades arrive, leaving the remainder resting. Some platforms offer options such as “fill or kill” (execute entirely or cancel) or “immediate or cancel” (execute what is possible now and cancel the rest). The exact options vary by venue.
Maker and taker fees
Many exchanges distinguish between orders that add liquidity and those that remove it. A resting limit order that later gets matched is called a maker order, because it added to the book. An order that matches immediately against resting orders is a taker order. Fee schedules often charge makers less than takers, and sometimes give makers a rebate, but the amounts and rules differ by platform, so check the one you use.
Stop orders and related types
Beyond the two basics, platforms often offer conditional orders.
- Stop-market. Once the price reaches a trigger level, a market order is sent. Execution is likely but the fill price is not guaranteed, and in a rapid move it can be far from the trigger.
- Stop-limit. Once triggered, a limit order is placed. This caps the price, but if the market gaps past your limit, the order may not fill at all.
- Others. Trailing stops and take-profit orders are variations on the same theme.
Stops are tools for automating a decision; they do not protect against loss. In turbulent moments, such as during a liquidation cascade, stops can fill well beyond their trigger levels.
Choosing between them
There is no universally correct choice. People often reason along these lines:
- When getting the trade done matters more than a small price difference, a market order is simple, but in a thin market it may be costly.
- When the price matters more than timing, a limit order lets you set a ceiling or floor, accepting that it might not fill.
- For larger sizes, a limit order or splitting the order into pieces can limit the impact on the price, as described in the article on liquidity and market depth.
On decentralized platforms that use pools rather than books, the equivalent of a market order is a swap with a maximum tolerated price movement, as explained in the article on automated market makers.
Things to check before you submit
- The side, the amount and the pair are correct (small typing errors are common and costly).
- The price on a limit order is on the intended side of the market. A buy limit far above the ask will fill immediately, at the ask, which may not be what you meant.
- Fees and minimum order sizes on that venue.
- Whether the order stays active until cancelled or expires.
Cryptocurrency prices are volatile and you can lose some or all of the money you trade. This article is a general explanation and not financial, tax or legal advice.