Market Orders vs Limit Orders
Two ways to buy, with different costs and different risks. Knowing which to use is the most useful ten minutes a beginner can spend.
What this covers
Every exchange offers at least two order types. The difference determines what you pay, and most beginners use the more expensive one without knowing there is a choice.
Market order
Buys immediately at whatever price is currently available.
What you get: certainty that it executes, now.
What you give up: control of the price. You accept the best available offer, and if your order is larger than what is available at that price, it fills at progressively worse prices.
The fee: exchanges charge more for market orders, because they remove liquidity from the book.
Limit order
Buys only at your specified price or better.
What you get: control of the price, and a lower fee, because a resting order adds liquidity.
What you give up: certainty. If the price moves away, the order does not fill.
Which to use
For a scheduled purchase where timing does not matter: a limit order, at or slightly below the current price. If it does not fill today, it usually fills within a day or two, and you have paid less.
When you need to transact immediately: a market order. The extra cost is the price of certainty, and sometimes that is worth paying.
During volatile conditions: limit orders, always. A market order during a fast move can fill at a price that looks absurd afterwards.
The third thing people miss
Many platforms have a simplified buy button separate from the order book. It is not a market order; it is a quoted price with a margin added.
That margin, called the spread, is frequently several times the trading fee and it does not appear on any fee schedule.
Using the order book instead avoids it. The interface looks more intimidating and takes about ten minutes to learn.
How to place a limit order
- Open the trading view for the pair you want
- Select limit
- Enter the price you are willing to pay and the amount
- Place it, and check back later
The order sits on the book until it fills or you cancel it.
What it saves
On the platforms we have looked at, moving from the simplified buy interface to a limit order on the order book has reduced the cost of a purchase by a large multiple.
For someone buying monthly, that is the single largest saving available, larger than choosing a different venue. Platforms that offer both, such as a regulated exchange such as Collect & Exchange, let you compare the two prices yourself before deciding which to use.