Community
Finance
Specials
On-chain Eco
Entry
Podcasts
Data
Summary
Market orders buy or sell financial assets immediately at the current best price. A market order "eats" a limit order in the order book. This means that you are not 100% sure you will get the price you want. When the transaction price does not match the expected price, a sliding spread occurs.
The difference between a limit order and a market order is that the price can be set in advance. The trading platform will execute your order only when the set price or a better price is reached. You can easily place market orders on Binance’s trading view. You can find it by clicking [Market] under the [Spot] tab.
The main advantage of market orders is that in most cases, the entire order can be filled simply, directly, immediately and efficiently. However, market orders also have disadvantages: there is slippage risk, and market tracking is required when the order is executed.
Introduction
The complexity of trading is not only reflected in buying and selling decisions. When buying and selling financial assets such as cryptocurrencies, stocks or forex, you will encounter various types of orders. From fill or cancel orders to stop-loss limit orders, market orders are the simplest of them and the most commonly used by beginners. Let’s understand what a market order is and how it works.
Definition of market order
A market order is an order to buy or sell immediately at the current best price and requires liquidity Sex seals the deal. This means that such orders are executed against published limit orders in the order book. If you want to buy or sell immediately at the current market price, placing a market order is the best solution. For example, the price of BNB may rise quickly and you want to buy early. As long as you can buy BNB immediately, you are willing to trade at the market price. In this case, you are better off executing the market order in your chosen trading platform.
How market orders work
Unlike limit orders in the order book, market orders are based on the current market price. Execute immediately. Transactions usually have two parties: the "order side" and the "taker side". Placing a market order means that you will be executed at the price set by others. For example, the trading platform will buy market orders at the lowest asking price in the order book. Instead, the trading platform will sell market orders based on the highest quote in the order book.
As mentioned above, market orders require the trading platform's liquidity in the order book to meet immediate demand. Since market orders "take away" liquidity from the trading platform, when you place a market order, you need to pay a higher fee as a market taker. Binance’s fee schedule illustrates the significant difference between maker and taker fees.
Example of market order
It will be more intuitive to use numbers to see the relationship between the market placers and takers. Let's look at an example. If you want to buy 1 BNB, the current market price is about $370. Visit Binance and open the BNB/BUSD trading pair. Create a buy market order, enter 1 in the quantity field, and click [Buy BNB].
After placing an order, the trading platform will display the order book. The ledger includes limit orders to buy or sell an asset setting a specific amount and price. In this case, your market order buys 1 BNB at the market price (also known as the spot price), matching the lowest-priced limit sell order in the order book.
As you can see, the lowest priced sell limit order in the order book is Sold 1.286 BNB at a unit price of 371.40 US dollars (BUSD). The market buy order will buy 1 BNB from the 1.286 BNB on sale at the spot price of $371.40.
However, suppose you want to buy 500 BNB at the current market price. The minimum sell order quantity cannot satisfy your market buy order. Your market order balance will automatically match the next lowest limit sell order in ascending order of order book price until all orders are filled. This process is called a Sliding Spread and is why market takers pay higher prices and fees (or get lower prices).
Comparison of market orders and limit orders
A brief review, A limit order is an order to buy or sell a certain amount of a financial asset at a set price or a more ideal price. You can also choose to have the trading platform fill a partial limit order or have to fill the entire order. In the latter case, if the trading platform cannot fill the entire order, the limit order will not be executed.
Market orders can only "eat" existing limit orders. Some people don't want to trade or invest at market price, so limit orders are also a good option. You can use limit orders to plan your trades in advance without having to watch the market all the time.
Market order | Limit order |
Buy the asset at market price | Buy assets at a set price or a better price |
Execute immediately | Only The transaction can only be completed when the limit order or a better price is reached |
Manually | Can be set in advance |
In addition to these basic differences, market orders and limit orders are suitable for Different trading activities and objectives. Limit orders are generally more suitable for:
1. Asset prices fluctuate violently. When placing market orders in a volatile market, the results are often unpredictable. Prices may change between the time an order is created and executed. These subtle differences can create differences in arbitrage profits and losses. A limit order will ensure you get the price you expect.
2. The asset lacks liquidityIn this case, using market orders may cause a sliding spread. For example, when there are fewer market makers in the order book, your order may not be easily filled at a price that approximates the current market price. Ultimately, the order may sell at a lower than expected average price or buy at a higher than expected average price. On the other hand, if the sliding spread causes the price to exceed the set value, the limit order will not be fully filled.
3. If a strategy has been developed. Limit orders can be executed without interaction, and orders can be placed in advance. That is, the strategy can still be executed even when there is no active trading. Market orders cannot do the same.
When to use market orders?
As we can see, if you value transactions more than price, it is recommended to choose market orders at this time. This means that you should only use market orders if you are willing to pay the high cost of sliding spreads. In other words, if you are in a hurry to complete a transaction, market orders are undoubtedly ideal.
Sometimes, a stop-loss limit order cannot be filled for a long time, but you are anxious to buy or sell as soon as possible. So whether you need to trade immediately or get out of the way, market orders are just the thing.
However, if you have some knowledge about cryptocurrencies and want to buy some altcoins with Bitcoin, please do not use market orders as you may pay some unnecessary fees. In this case, a limit order may be a better option.
When trading highly liquid assets with small bid-ask spreads, using market orders allows you to obtain prices that are close to or equal to the expected spot price. The larger the asset spread, the higher the risk of slippage.
How to issue a market order on Binance
Suppose you create a market order to buy 2 BNB. After logging into your personal Binance account, go to the trading platform view. Select the BNB market (such as BNB/BUSD), find the [Spot] tab, and select [Market]. Next, set the purchase quantity to 2 BNB, and then click the [Buy BNB] button.
A confirmation message will then appear on the screen and your market order will be executed.
Advantages of using market orders
Depending on the specific situation, market orders mainly have the following three major advantages:
1. Market orders are easy to use. If you plan to trade high-cap tokens with excellent liquidity, such as Bitcoin or Ethereum, it is highly safe to use market orders.
2. All assets can be bought and sold according to personal wishes. If you need to close or open a position as soon as possible, market orders will definitely do what you want.
3. Support real-time transactions. For example, when the market is about to close, the time to execute a transaction may be very tight. But what is certain is that market orders are always the fastest way to execute a trade.
Disadvantages of using market orders
Market orders mainly have the advantage of speed, but you lack the ability to control orders of control. The main disadvantages are:
1. You may encounter assets with low trading volume and high slippage. You may find that you pay more than you expected or get less than you expected in return. When the order book trading volume is insufficient, the system will execute orders in ascending or descending order.
2. Transactions cannot be planned in advance. You are not guaranteed to be glued to the screen, ready to trade at all times. If the market conditions run counter to your trading strategy while you are sleeping or busy with other things, you will simply not be able to place a market order in time. At this time, you can plan in advance to use limit orders or stop-loss limit orders.
To learn more about limit orders, please read "What is a limit order?" 》
To learn more about stop-loss limit orders, please read "What is a stop-loss limit order?" 》
Summary
Market orders are the most basic way to buy and sell financial assets method. These methods are perfect for getting in and out of the market quickly. However, this comes at the cost of losing the control you enjoy with other types of orders. The best way is to fully consider the specific situation and grasp the best time to use market orders or other order methods.