What is the difference between limit order & market order?

Cryptocurrency markets are volatile in nature, and prices can change dramatically in a short period of time. As a result, many users prefer trade orders over manual trading. Trade orders, which include limit orders and market orders, help traders to leverage market prices and earn increased profits.

What is a limit order?

A limit order buys or sells an asset when its price crosses a specific threshold. When the price reaches the selected limit, the trade will be executed automatically. For instance, if the current market price of Bitcoin is $30,000, you can set a limit order to buy it when the price reaches $10,000. When the BTC price reaches or falls below $10,000, your order would be executed. Limit orders will be executed faster when the price exceeds a specified limit. However, it is not guaranteed that the limit order will be executed since the price may not reach the specified limit.

What is a market order?

Market orders are placed to buy or sell an asset at the best possible rate at that moment. Market orders are executed immediately and do not guarantee a specific price. They are best suitable in the following scenarios when you would like to execute the order instantly, or if you think the current market price is right. For instance, you can place a market order to buy 1 BTC as quickly as possible, at the best possible current market price. While placing a market order, you need to consider the current bid-ask prices instead of the last trade price. ‘Bid’ is the price at which buyers are willing to buy crypto, while ‘ask’ is the price that sellers are willing to sell their crypto. Due to a wide bid-ask spread, your market order may get executed at a different price than expected.

Major differences between limit orders and market orders

Let’s review the major differences between limit orders and market orders:

• The limit order will be executed automatically only when the specified limit is reached. On the other hand, a market order will be executed instantly.
• There is no guarantee if a limit order will be executed whereas the market order will definitely be executed.
• In the case of limit orders, a pre-specified price is guaranteed. But, the market order may get executed at unexpected prices. The limit orders focus on specific prices, while a market order prioritizes instant execution of the order.

Therefore, you need to define your goal to choose the best suitable trade order for your current situation.