Market order in crypto trading - when to use it and how does it work

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Crypto trading requires knowledge about a great number of different terms. While this does take some time it can help you to be a better trader. This includes learning to use various order types that are available for you.

Each of them has their own rules, and you’ll want to learn how to use all of them. Today, we’ll be talking about cryptocurrency market orders. What are they? How do you use them properly? We’ll go over all of that and more to help you master the market order.


What is market order in crypto trading

A market order is an order that will buy or sell cryptocurrency coins and tokens for whatever the going price is. The goal of a market order is to fill the order at any cost, and that makes it something you’d want to use if you need to be sure the order will be executed and not get hung up.

However, you’ll be also required to buy or sell for the current ask price which can greatly vary depending on how big the order book is.


How does it work

When you submit a market order you agree to purchase crypto coins or tokens for whatever price someone is willing to sell them for. This can be either good or bad depending on the situation.

A market order goes to the top of the pile when orders are being filled, and it means that for people who need to buy or sell quickly, market orders are the way to go. They can help you to liquidate dangerous positions before a big loss or to collect a token that’s about to explode in price.


Market order example

Jimmy has been trading a cryptocurrency up and down all day. He’s made a nice profit, but suddenly disaster strikes. His technical analysis is telling him that the bottom is about to fall out on his holdings. He’s currently down by a slight percentage, but he doesn’t want to take the risk of a massive loss of capital.

He decides to liquidate to protect his profit and so he submits a market order. The price trends downward slightly, but he manages to liquidate his entire holding and only take a 10% haircut on the deal when all is said and done.

The price continues to fall, and it looks like Jimmy was right to use a market order. While he did lose 10%, if he would have waited and used a limit order it’s possible that he could have actually lost 30%.

Market orders can be very useful in situations like this. Be careful when using them though and know how to calculate how much you’ll lose. If your TA is wrong you could end up regretting your liquidation. However, market orders can be very useful when used appropriately.


Market order use cases in cryptocurrency trading

There are a few scenarios where you might want to use a market order. Most of them involve getting in or getting out before a big event happens. When it comes down to it, limit orders are at hand when you have time and want to get a much better deal.

Market orders are at hand when you have limited time but your potential loss or gain will surpass the premium you’re going to pay on your buys and sells.


How to place a market order

Placing a market order is easy. Instead of entering a specified amount, you would select market order. Enter the number of coins or tokens you want to purchase and the exchange should take care of the rest for you.

Be careful though, depending on how much liquidity is on the market you may end up paying much more than you intended to. Make sure you look over the book so you can estimate what your costs will be before you submit an order.


Can crypto market order be canceled

In most cases, a market order will be filled instantly. It will be very difficult to cancel a market order once it’s in progress. Most likely, it will be hard to sell or buy back coins and tokens if you sell them this way as well, because you’ll be forced to either take a loss or pay a premium for them in many cases.

Though if you’re using this as a defence of capital you may actually be able to buy back it cheaper after the drop.


Why market order may not be filled

In some cases, an exchange will submit your market order with a “collar”. This is not truly a market order, but more of a market order with a 5% buffer in the price. This means that if the price goes above or below 5% of the price of the asset when you submitted the market order then it might not execute.

This is meant to protect investors, but it could ruin your day if you’re not aware that this is how your exchange of choice operates.


Market order vs limit order

A limit order will be executed only if the asset in question hits a certain price. This keeps you from overpaying or selling at a loss. A market order ignores this rule and simply wants to purchase or sell an asset as quickly as possible.

Limit orders are a better order type if you have time to wait for the best price, if not a market order can give you what you need immediately.


Market order vs stop loss

A stop-loss allows you to take advantage of market orders at a later date. If you’re worried about an investment plummeting while you’re not there to babysit it, then a stop loss can help. You set a stop point, and if the asset falls past that number stop-loss turns into a market order.

The exchange will then attempt to liquidate your holdings at any price in order to preserve your capital. A market order will accomplish the same thing, but you need to be present to execute it.