What is the difference between market, limit, and stop orders?

If you’ve ever logged onto a cryptocurrency exchange and seen the variety of different orders you can make, you’ve probably wondered what the difference is between the types of orders available to choose from.

Buy and sell orders are placed on an order book, and orders are filled by matching buyers and sellers at current market prices. The basic types of cryptocurrency trades are market, limit, and stop orders.

Market Order

Market orders are the simplest type of trade. Buy or sell orders are placed and immediately filled at the current market price. With market orders, slippage might occur, which means that the price might dip below or above the desired price, and you may get less than expected when your order is filled.

Market orders also incur taker fees. Exchanges charge fees for placing orders that are filled immediately to help minimize rush trading and steady the price of the currency. By creating a market order, you become a “taker” in the market and are subsequently charged a taker fee.

Limit Order

In many ways, limit orders are the best way to exchange on the market, as you get to set the price for your order rather than the market setting it for you. A limit order is a buy or sell order that is filled when the market reaches a specified price or better. You set a fixed order price to help you get your preferred price, and your order is placed on the order book until it is filled by the taker.

The advantage of limit orders is their immunity to slippage, and by placing the order on the book instead of immediately into the market, you become a maker instead of a taker, and you’re charged a smaller fee (or no fee on some exchanges).

Limit orders can be either completely or partially filled, and you can often set the following advanced options:

  • Good ’Til Canceled: your order is placed on the order book and is valid until you cancel it.
  • Good ‘Till Time: you set a time and your order is placed until it is filled or the time runs out
  • Immediate or Cancel: your order is placed and is canceled if not filled immediately
  • Fill or Kill: your order is placed and will only be filled if the entire amount is matched

Stop Order

Stop orders are buy or sell orders that are made when the market price matches a “stop price,” or an amount that you specify that you want to buy or sell at. When the market price reaches the stop price, your stop order becomes a market order and is immediately filled.

As with market orders, stop orders can also experience slippage. Because you order is filled as soon as the market reaches the stop price, you might not get the best possible deal for your order if market prices continue to climb or fall past your stop price.

Because stop orders become market orders, they are also charged the taker fee. However, you can place a stop limit order by selecting both a stop and limit price. The stop order will automatically become a limit order when the market reaches the stop price.

Which to Use

Each type of order has its advantages and disadvantages. Market orders are subject to slippage and taker fees, but are filled immediately (and therefore a good option during a bull run). Stop orders can also be affected by slippage, taker fees, and don’t ensure you get the best price, but can be an easy exit/enter strategy. Limit orders can be difficult to use during bull runs or crashes, but are the best type of orders for typical exchanges because they are immune to slippage, don’t incur taker fees, and help you get the best trading price.

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