Understanding Market Orders (Market Buy/Sell)
A market order, also known as a market buy or market sell, is the purchase or sale of a cryptocurrency on an exchange at the current best available price.
When placing a market order, the transaction is executed based on the willingness of buyers and sellers to trade at the prevailing market prices.
Quick Execution and Liquidity Access
Market orders differ from limit orders, where a cryptocurrency is sold or bought only at a specified price.
Investors typically request market orders through brokers who execute the orders on their behalf.
Market orders are popular because they offer high liquidity and are considered cost-effective.
Some brokerages provide a simple buy/sell button to facilitate market orders.
By executing a market order, a trader agrees to sell at the current bid price or purchase at the current ask price.
Strategy and Bid-Ask Spreads
Market orders are distinct from limit orders, which cryptocurrency traders use to buy assets when a specific price is reached.
This strategy is commonly employed when traders anticipate price drops or open long positions.
Before placing a market order, it can be beneficial for traders to assess bid-offer spreads.
A tighter spread indicates greater liquidity and a more competitive market.
Instant Execution and Price Sensitivity
Market orders are executed instantly, meaning that once the order is executed, the cryptocurrency (e.g., Bitcoin) is immediately bought or sold at the prevailing price.
Once the transaction is completed, it is said that the “order has been filled.”
One disadvantage of market orders is that they can potentially disadvantage more price-sensitive traders.