Market orders are the easiest way to execute a trade instantly. Perfect if you’re not looking to wait around, or you’re eager to trade as fast as you can.
It is vital that you educate yourself on market orders.
Market orders are not as simple as they might seem. There are cons to market orders that you might not be aware of.
- What is a market order?
- Types of Market Order
- How to Place a Market order
- How does a Market order work
- What are the pros and cons of using Market order?
What is a market order?
A market order is an order type used to buy or sell a certain amount of an asset at the best market price.
Market order example
You are looking buy $100 worth of BTC. You don’t care what price BTC is, you just want $100 worth.
You log in to Kucoin — a cryptocurrency exchange. Then you open a BTC/USD trade and place a market order to buy $100 worth of Bitcoin.
The order executes instantly. Now, you have $100~ worth Bitcoin in your account (minus trading fees and spread — which we’ll cover shortly).
Seems simple right? Sure. But there’s more you should know.
Are market orders guaranteed to execute?
A market order is guaranteed to execute. However, (and it’s a big ‘however’) market orders do not guarantee the amount that you will recieve.
A) When you place a buy market order, it will fill the nearest ask price. The ask price is the nearest Sell Limit Order waiting to fill.
B) When you place a sell market order, it will fill the nearest bid price. The bid price is the "nearest" Buy Limit Order.
Types of Market Order
There are two main types of Market Order that you can place.
The two main types of market order. Buy market orders and sell market orders.
You’ll probably stumble across some more advanced Market order types too. For example: Stop Market orders, but we’ll save that for the Stop Market orders section!
Lets keep it simple for the time being — it’s good to build solid foundations first.
Sell market order
What is a Sell Market Order?
A sell market order is a market order to sells instantly at the best market price (the nearest ‘ask’ price).
Sell market orders fill another trader’s buy limit orders.
Buy market order
What is a Buy Market Order?
A buy market order is a market order that buys instantly at the best market price. Guaranteeing execution, but not the amount that will be received.
Buy Market orders fill another trader’s Sell Limit Order.
How to Place a Market order
Market orders only require two things: whether you’d like to buy or sell, and the amount you are willing to trade.
On any cryptocurrency exchange, you should be able to find the Market order form. Fill it out with how much you’d like to spend, and then place the order.
How does a Market order work
We have already touched in this above, but lets summarize how a market order works into a some simple steps.
- The trader chooses whether to Buy or Sell.
- The trader chooses the amount the would like to spend.
- The trader places the order.
- The order executes instantly, filling the nearest Bid or Ask price.
- The trader then receives their order minus any trading fees and spread incurred.
What are the pros and cons of using Market order?
Pros of using a Market order
- Market orders tend to execute instantly — provided their is liquidity.
- Will always take the best price.
- Easy to use.
- Can be executed without too much analysis.
- Guaranteed to execute.
Cons of using a Market order
- Fees incurred by market orders are often higher than ‘Maker’ fees incurred by limit orders.
- Market orders incur a loss on spread — the order will take the best market price, which is always a higher than the best price that could achieve with a limit order.
- Losses due to slippage can occur when there is not enough liquidity.
- Market orders could be ‘front-run’ — malicious exchanges or traders could remove limit orders before the market order executes, resulting in the trader that placed the market order paying more for an asset or receiving less than expected.