What are Limit Orders and Market Orders?

Investors may have a hard time deciding which type of order to use when buying bitcoin (BTC) or any other coin. Other types of orders can affect your trading in different ways. Therefore, it is very important to understand and know the differences between these order types before placing orders. If you want more control over your buying and selling, consider using limit orders, which allow you to limit the buying or selling price of a coin.

What is a Limit Order?

Limit order
is a type of buy or sell order with a specific bid or ask price. When placing a limit order, you need to set a maximum or minimum price for the asset you want to buy or sell. After that, your order enters the order book and is executed only if the market price reaches your limit price (or better).

Unlike market orders, where trades are executed instantly at the current price, limit orders give traders more control over the execution price. Since limit orders are automated, you don’t have to follow the market 24/7 or miss a trading opportunity while you’re sleeping.

However, the execution of your limit order is not guaranteed. If the market price does not reach the limit price, your trade will remain unexecuted in the order book. Often, a limit order can be placed for several months, but the durations may vary depending on the crypto exchange you use.

How Does a Limit Order Work?

A limit order that has already been sent is instantly added to the order book. However, these orders will not be executed if the price of the coin does not reach the set limit price or better. For example, suppose you want to sell 10 BNB at $500 and the current price is $400. You can enter a 500 USD BNB sell limit order. When the BNB price arrives at the target price or higher, your order will be executed depending on the market liquidity. If there are different BNB sell orders in front of you, the system will first execute them. Your limit order will then be executed with the remaining liquidity.

Another point to consider when placing a limit order is the validity period of the order. Limit orders can mostly be placed on a maximum daily basis of 90 days. However, if you are not following the market closely, you may find yourself buying or selling at a less-than-ideal price due to market volatility.

For example, let’s say the current market price of BNB is 500 USD and you place a sell limit order of 10 BNB at 600 USD. The following week, the price of BNB rises to 700 USD. The market price can reach the limit price you set, and your order will be executed at 600 USD. In this case, your profit will be limited to the target price you gave in the previous week. For this reason, you should review your open limit orders from time to time in order to keep up with the constantly changing market conditions.

When to use limit orders?

– When you want to buy or sell at a specific price, different from the market price;
– When you are not in a hurry to buy or sell at that moment;
– When you want to lock in unrealized profits or minimize potential losses;

However, it should be noted that even if the limit price is reached, it is not always guaranteed that your order will be fully executed. All situations depend on market conditions and general liquidity.

What is a Market Order?

A market order is a type of order that allows you to buy or sell the cryptocurrency you want to buy or sell at the best price available. When trading with a market order, you do not need to set a bid or sell price. Your transaction is instantaneous. Your order is executed by matching the best order in the order book at that moment. If you place an order with a higher amount than the best priced order, it will continue to match the following order or orders until your order is fully fulfilled.

How Does a Market Order Work?

Unlike limit orders that are entered into the order book, market orders are executed instantly at the current market price. There are always two parties involved in a transaction: the market maker and the market buyer. When you place a market order, you are receiving the price set by someone different. For example, the stock market will match any buy market order with the lowest ask price in the order book. As opposed to this, a sell market order will be matched with the highest bid price in the order book.

For example, an investor, XYZ Inc. He enters an order to be able to buy 100 shares of his company from the market. Since the investor chooses whatever the price of XYZ shares is, the trade will be filled quickly at whatever the current price of that security is at that moment.

– Market orders are trades that are intended to be executed as soon as possible at the current market price.
– Limit orders set the maximum or minimum price at which you intend to complete the trade, whether buying or selling.
– Market orders offer a higher probability that an order will be executed, but there is no guarantee as orders are subject to availability.