Order Types - Market, Limit, and the Order Book
What is an Order
When buying or selling crypto on an exchange, an order specifies at what price and how much you want to trade. Understanding order types is important because they affect execution speed and price.
Market Order
An order that executes immediately at the current market price.
- Executes as soon as you press the button
- Useful when you need to buy or sell quickly
- Fills at the best available price in the order book
Pros
- Instant execution so you don't miss timing
- Simple to use
Cons
- May fill at unfavorable prices for low-volume coins (slippage)
- Taker fees apply
For first-time crypto purchases, market orders are the most convenient. For small amounts, slippage impact is minimal.
Limit Order
An order placed at a price you specify. It automatically executes when the market price reaches your specified price.
Example:
- Bitcoin current price: $70,000
- Limit buy order: Set at $68,000
- When price drops to $68,000, it auto-buys
Pros
- Trade at exactly the price you want
- Maker fees apply (usually cheaper)
Cons
- Won't fill if price never reaches your level
- May miss opportunities in fast-moving markets
Maker and Taker
Understanding these concepts is essential for fee calculation.
| Type | Maker | Taker |
|---|---|---|
| Meaning | Creates liquidity by placing orders in the book | Takes orders from the book |
| Order Type | Limit orders (mostly) | Market orders |
| Fees | Lower | Higher |
Exchanges reward makers with lower fees because they provide liquidity to the market.
Reading the Order Book
The order book displays all current buy orders and sell orders arranged by price.
Order Book Structure
Sell Orders (Red/Top)
─────────────────────────
Price Quantity
$71,000 0.5 BTC
$70,500 1.2 BTC
$70,200 0.8 BTC ← Best Ask
═══════════════════════════ Current Price
$69,800 1.5 BTC ← Best Bid
$69,500 2.0 BTC
$69,200 3.1 BTC
─────────────────────────
Buy Orders (Green/Bottom)
- Best Ask: The lowest price someone is willing to sell at
- Best Bid: The highest price someone is willing to buy at
- Spread: Best Ask - Best Bid (smaller spread = better liquidity)
Buy Walls and Sell Walls
When abnormally large order volumes stack at certain price levels, they're called walls.
- Buy Wall: Large buy orders at a specific price → Makes it hard for price to fall below
- Sell Wall: Large sell orders at a specific price → Makes it hard for price to rise above
However, large traders sometimes place and cancel walls intentionally, so don't make decisions based on walls alone.
What You Can Read from the Order Book
- Liquidity: Tight price gaps with large quantities indicate good liquidity
- Buy/Sell Pressure: Which side has more volume hints at short-term direction
- Slippage Prediction: Compare your order size to available volume
Other Order Types
Exchanges may offer additional order types.
Stop Order
An order that activates when a specified price is reached. Primarily used for stop-losses.
- Stop-loss example: Bought Bitcoin at $70,000, auto-sell if it drops to $65,000
- Acts as a safety mechanism to prevent large losses in downtrends
Stop Market
Executes as a market order when the trigger price is reached. Guarantees fast execution.
Stop Limit
Places a limit order when the trigger price is reached. You control the price, but execution isn't guaranteed.
Practical Tips
Use Market Orders for Small Trades
For purchases under $100, market orders are most convenient. Slippage impact is minimal.
Use Limit Orders When You Have a Target Price
If you have a strategy like "I'll buy when it drops to this price," place a limit order. No need to constantly watch the order book.
Be Careful with Low-Volume Coins
Altcoins with low trading volume have wide price gaps, and market orders can result in losses. Always use limit orders in these cases.