Definition
A market order buys or sells immediately at the best prices currently available, while a limit order trades only at a price you set or better and may not fill at all.
How it works
An order book lists buy orders (bids) and sell orders (asks) at different prices. A market order takes the best available offers, and if the first price level does not have enough quantity, it continues to the next levels. In an active market execution is almost certain, but the final average price is not known in advance; the gap from the expected price is called slippage.
A limit order sets the worst price you accept: a maximum for a buy, a minimum for a sell. If it can be matched right away, it fills at that price or better; otherwise it waits in the order book until the market reaches it or until you cancel it. It may fill partly or not at all. On many exchanges, an order that waits in the book is a maker order, an order that fills against it is a taker order, and the two often pay different fees.
The choice is a trade-off between certainty of execution and control of price. Market orders are common when getting in or out quickly matters more than the exact price; limit orders are common when the price matters more than timing. Stop orders are a separate type: they trigger a market or limit order once the price reaches a set level.
Example (hypothetical numbers)
Suppose Coin A's order book shows sell orders of 50 coins at $10.00, 100 at $10.05 and 200 at $10.10, and you want 200 coins.
A market buy fills at once: 50 × $10.00 + 100 × $10.05 + 50 × $10.10 = $2,010, an average of $2,010 ÷ 200 = $10.05.
A limit buy for 200 coins at $10.00 fills only 50 coins immediately; the other 150 wait in the book and fill only if sellers offer at $10.00 or lower.
The market order paid $10 more than 200 × $10.00 = $2,000 for certain execution; the limit order protected the price but may stay partly unfilled.
Common mistakes
- Using a market order for a large trade in a thin market and paying through several price levels.
- Expecting a limit order to fill just because the price touched the limit level once.
- Leaving forgotten limit orders open that fill later, after conditions have changed.
Related calculators
This glossary is for education only and is not investment advice. Examples use hypothetical numbers.