This article will give you details on how market orders work, how they differ from limit orders and the best ways to use them.
Market Order Definition
A market order is a request given by a trader to a broker or an exchange to buy or sell a particular asset for immediate delivery at the current available market price.
Unlike limit orders that execute trades at the time an asset reaches a particular valuation, market orders are concluded instantly upon agreement between the buyer and the seller. Market orders are convenient for trading small volumes of highly liquid assets with a narrow bid-ask spread while limit orders can be more suitable for illiquid asset trades.
How do Market Orders Work?
Market orders are filled as soon as the buyer and the seller express the willingness to complete a transaction. Although a market order typically ensures execution of the trade itself, it does not guarantee a specified price for an order. Market orders are employed when certainty of order completion is a priority over order price.
On an exchange a sell market order will execute at or near the current bid, and a buy market order at or near the current ask. With market orders the final price of the trade is always determined by the market.
Large-cap assets are generally traded via market orders, as they offer high liquidity and are less volatile than small-cap assets. If the price of a security is likely to change over a short period of time, a trader may spend more or earn less from the market order trade than they originally expected.
Market orders are the most common and straightforward type of orders. They entail an instant exchange of value and offer a quick and reliable method of entering a trade.
Why Use a Market Order?
Market orders are the most popular and uncomplicated way to trade assets. They are usually completed quickly at the current best price available. Market orders are used for trades where the price is less important than the promptness of the transaction. This type of order is common for assets with relatively low volatility and a high trading volume.
If you are trading with TabTrader, the platform will make sure you get the best price possible when executing a market order.
Pros and cons of a market order
- Fastest execution possible
- High chance of order completion
- Easy to use
Cons:
- Final price is determined by the market
- Inconvenient for low-cap asset trades
Market Order vs. Limit Order
Market orders complete trades at the current available market price while limit orders can set a maximum price for buying and a minimum price for selling. A limit order will only be processed after the price surpasses an indicated level. With limit orders a trade will not be executed unless the price reaches a specific valuation.
Limit orders are convenient in case a trade involves volatile assets with low liquidity while market orders are usually best for high-cap assets.
Example of a Market Order
Let us say token X bid and ask prices are 18 and 20 USD, respectively. There is also a pending order for 100 token X available for purchase for the ask price. Then, if a trader places a market order for 200 tokens, half of the tokens will be bought instantly for 20 USD per token, while the rest will be purchased for whatever price comes next. It may be as high as 21 or 22 USD per token or even more depending on how liquid this token is.
When trading with TabTrader users receive the best available price for any order on the market.
Market Order FAQs
Here you can find answers to most frequently asked questions. If anything remains unclear, please don’t hesitate to tell us!
What does a market order mean?
By placing a market order you give your broker, exchange or trading platform an instruction to execute a transaction at the current market price. This kind of order is the most popular among traders and investors.
What is an example of a market order?
Let us say there is an ask order for 100 units of token X at 5 USD per unit on an exchange’s order book. Should a trader wish to buy 50 token X through a market order, their trade will be completed immediately.
What is the advantage of a market order?
Traders choose a market order when they want a transaction executed fast and with a high chance of completion. Market orders are also easier to use than the limit orders when trading assets in bulk.
How are market orders filled?
Market orders are executed at a price given by the market, while limit orders leave traders more in control over the final asset valuation in their transaction. Market orders for popular stocks, currency pairs, commodities or cryptoassets are filled almost immediately, while orders for less-liquid assets can take longer to execute.
