Market and limit orders
Lesson 8 of 16 in the course “Futures from Zero”. Free, with animations and a quiz.
Two ways to get in
An order is your instruction to the exchange. A market order says “Buy right now, at whatever the price is”. It fills instantly, but you don’t choose the price. A limit order says “Buy only if the price reaches $64,000”. You choose the price, but if the market never gets there, there’s no trade. It’s like grabbing a taxi now versus waiting for a ticket sale.
Where the price comes from
The price on an exchange is where buyers and sellers meet. Their limit orders sit in the order book: red on top are those who want to sell, green below are those who want to buy. Whoever places a limit order adds liquidity and is called a maker. Whoever hits the market and takes someone else’s order is a taker. The gap between the best sell and buy prices is the spread.
Slippage
A market order takes the best prices from the book one by one. If the book is thin or the price jumps on news, you’ll buy higher than the price you saw on screen. That’s slippage. On bitcoin on a calm day it’s tiny. On a small coin in a panic it can be several percent. That’s why on news and on thin coins experienced traders lean on limit orders.
Check yourself
- Nika wants to buy only if bitcoin drops to $62,000. Which order?
Correct answer: A limit order at $62,000. A limit order waits for your price. If the market never gets there, there’s simply no trade. - Who is a taker?
Correct answer: Whoever hits the market and takes someone’s order from the book. A taker removes liquidity and pays a higher fee. A maker adds it and pays less. - Big news is out and a small coin’s price is jumping. What’s the risk for a market order?
Correct answer: Slippage: it fills noticeably worse than on screen. A market order always fills, but at whatever prices the book has. When it’s thin, that can be far from what you expected.