An order is an instruction to buy or sell on a trading platform such as a stock market, bond market, commodity market, financial derivative market, or cryptocurrency exchange. There are four common types of orders for trading. They are market order, limit order, stop order, and stop-limit order. But, this article will emphasize on only Limit and Market Order.
What is a Limit Order?
A limit order is an order that you place on the order book with a specific limit price. The limit price is determined by you. So when you place a limit order, the trade will only be executed if the market price reaches your limit price (or better). Therefore, you may use limit orders to buy at a lower price or to sell at a higher price than the current market price.
Unlike market orders, where trades are executed immediately at the current market price, limit orders are placed on the order book and are not executed immediately, meaning that you save on fees as a market maker.
How does it work?
Let’s say you want to sell BTC for NGN at a higher price than what is currently on the order book. After logging in to your Naijacrypto account, click on NGN, choose the market you want (e.g., BTC/NGN) on the exchange page. Under “Sell BTC”, find the Limit order button, set the price and amount, and click on “Place Sell BTC” button. You will see a confirmation message on the screen, and your limit order will be placed on the order book. The limit order will only execute if the market price reaches your limit price. If the market price doesn’t reach the price you set, the limit order will remain open or pending.
When to use a Limit Order?
You should use limit orders when you are not in a rush to buy or sell. Unlike market orders, the limit orders are not executed instantly, so you need to wait until your price is reached. Limit orders allow you to get better selling and buying prices and they are usually placed on major support and resistance levels. You may also split your buy/sell order into many smaller limit orders, so you get a cost average effect.
What is a Market Order?
A market order is an order to buy or sell an asset immediately at the best available price. However, you need to remember that the last traded price is not necessarily the price at which a market order will be executed. It needs liquidity to be filled, meaning that it is executed based on the limit orders that were previously placed on the order book.
Unlike limit orders, where orders are placed on the order book, market orders are executed instantly at the current market price.
How does it work?
Let’s say you want to create a market order to buy 0.05 BTC with NGN. After logging in to your Naijacrypto account, click on NGN, choose the BTC market you want (e.g., BTC/NGN) on the exchange page. Under “Buy BTC”, find the Market order button, click on it, set the amount to 0.05 BTC, and click the “Place Buy Order” button. You will see a confirmation message on the screen, and your market order will be executed.
Since market orders are executed right away, your market buy order will match the cheapest limit sell order available on the order book.
But let’s assume you want to buy 0.01 BTC at the current market price (market order). The cheapest limit sell order available will not be sufficient to fill your entire market buy order, so your order will automatically match the following limit sell orders, working its way up the order book until it is completed. This is called Slippage.
When to use a Market Order?
Market orders are convenient in situations where getting your order filled is more important than getting a certain price. This means that you should only use market orders if you do not care about the prices, exchange rate, and fees. In other words, market orders should only be used if you want your orders to be executed immediately.