When trading crypto assets on an exchange, you have to create orders to either buy or sell an asset. By creating an order, you make an offer to another trader to buy or sell an asset to you.
There are different types of orders, depending on what you wish to achieve. For active day traders for example, an order means taking a bet that the price of an asset will either go up or come down. If the market goes as predicted, you win. Otherwise, you lose.
For those who don’t trade actively, it could be that you just wish to buy or sell an asset for another. In this case, you can place a number of orders, one of which is the market order. In this guide, we examine what a market order is in crypto, how it works, and when to use it.
What is a Market Order?
Simply put, a market order is an order to buy an asset instantly at the best possible price at the time of placing the order. This is a simple order that almost anyone can easily place. It is also instant, efficient and gets filled instantly most of the time.
They however need liquidity to fill, so they derive their prices from limit orders on the order book, making them susceptible to slippage, which is a change in the price of an asset from when you placed the order.
This can result in your order being filled at a different price than the one at which you placed your buy or sell order. You also need to be present from the placing of the order to its filling.
If you wish to immediately trade USDT for BTC for example, a market order is the one to place. As long as you don’t mind buying at the current price, this order will almost instantly fill your request and you’re good to go.
Market orders are different from other forms of orders in that they are not placed on the order book, but rather executed instantly at the current price of the asset. Placing the order makes you a market taker, so it costs more in fees.
When to Use a Market Order
Market orders are perfect when you’re more interested in getting your order instantly filled than when you want to buy or sell at a specific price. A market order can also come in handy if you had a stop-limit order that was passed over, and you need to buy/sell as soon as possible. Placing a market order will then save you from the potential loss in such a situation.
A market order is also particularly suitable for beginners since they can easily buy or sell whatever they want and get out. It is also ideal for trading assets with smaller spreads since they have a much lower tendency of causing a slippage.
Market orders are also not good for trading low-volume assets as these have low liquidity, leading to high slippage that can make you pay much more than you thought, or you’ll get much less than you expected.
Should You Use a Market Order?
A market order is the simplest order you can place on a centralized crypto exchange either to buy or to sell an asset. If you’re a beginner just getting into the space, it is safer to stick with it. You however have no control over the outcome of the trade.
It is filled faster than other orders, yes, but there can be a dramatic change in price which can affect what you get at the end of the trade. There are other orders that give you more control, but they are more complicated and do not get filled instantly like market orders.
We will deal with these other orders in subsequent guides, but for now this is one you can use to buy or sell instantly.
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