What is Market Orders, Understanding How They Work and When to Use Them?

A market order is a type of order that is executed immediately at the best available price in the market. It relies on the existing limit orders in the order book to provide liquidity. If you have a need to buy or sell an asset promptly at the current market price, placing a market order is the most suitable choice.

For instance, let’s say the price of BTC is rapidly increasing, and you want to buy it as soon as possible. Your priority is to acquire BTC instantly, regardless of the market price at that moment. In such a scenario, you would opt for a market order on your selected exchange. This ensures that your order is executed promptly based on the prevailing market conditions.

How a market order works

Market orders differ from limit orders as they are executed immediately at the prevailing market price instead of being placed on the order book. In every trade, there are two parties involved: the maker and the taker. When you initiate a market order, you act as the taker by accepting the price set by someone else.

For instance, when you place a market order to buy on an exchange, it will be matched with the lowest ask price available on the order book. Conversely, a market order to sell will be matched with the highest bid price on the order book. This ensures that your trade is executed promptly based on the existing market conditions, without the need to specify a specific price or wait for a counterparty to accept your order.

When to use a market order?

Market orders are useful when the priority is to have your order filled quickly rather than obtaining a specific price. However, it’s important to note that market orders can result in slippage, causing you to pay a higher cost. Therefore, they are most suitable when you’re in a hurry and willing to accept the potential higher price.

There may be situations where your stop-limit order gets bypassed, and you need to execute a trade promptly. In such cases, market orders can be advantageous as they allow you to enter or exit a position immediately.

On the other hand, if you have some experience in cryptocurrency trading and intend to purchase altcoins using Bitcoin, it is generally advisable to avoid market orders. This is because market orders can potentially lead to paying more than necessary. In such scenarios, opting for limit orders is typically a better choice as it allows you to set a specific price at which you want your trade to be executed.

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