A market order is an instruction to buy or sell straight away at whatever price is currently available. A limit order is an instruction to buy or sell only at a specified price or better, which means it may wait, and may never be filled at all.
The choice between them comes down to a simple trade-off: certainty of execution versus certainty of price. You can generally have one or the other, but not both. This article explains how each works, why the difference matters most when markets are moving quickly, and what to consider before using either.
Some Terms First
Two words appear throughout, so it is worth defining them clearly.
Execution means an order being carried out, whether in full or in part. An order that has been executed is often described as “filled”.
The order book is the list of offers waiting in the market at any moment: buyers stating what they will pay, sellers stating what they will accept. Every order interacts with this book, and understanding it explains most of what follows.
What a Market Order Is
A market order says, in effect, “do this now, at the best price presently on offer.” It does not specify a price. It prioritises speed and completion above everything else.
In practice, a market order works its way through the order book, taking the best available offer first, then the next best, and so on until the full quantity is filled. In a busy, liquid market this happens almost instantly and the price achieved is very close to the price displayed.
The trade-off: you are highly likely to be filled, but you do not control the price you receive. In a fast-moving market, that price can differ from what you saw a moment earlier.
What a Limit Order Is
A limit order specifies a price. A buy limit order will only execute at your stated price or lower; a sell limit order will only execute at your stated price or higher. If the market does not reach your price, the order simply sits in the order book, unfilled.
A limit order may also be filled only partially. If you want to buy a certain quantity at your price but only part of that quantity is available there, you may receive part of the order and wait for the rest.
The trade-off: you control the price, but you have no assurance of being filled. The market may move away and never return.
How Execution Differs
The practical difference can be summarised simply.
- Market order: execution is close to certain; the price is not. It is well suited to situations where getting in or out matters more than the exact figure.
- Limit order: the price is certain if the order fills; the fill is not. It is well suited to situations where a specific price matters more than immediacy.
- Timing: a market order typically resolves within moments. A limit order can rest in the book for minutes, days, or indefinitely, depending on how it was set up.
- Effect on the market: a market order removes existing offers from the order book. A limit order that does not fill immediately adds an offer to it.
Slippage
Slippage is the difference between the price you expected and the price you actually received. It affects market orders in particular, because they accept whatever the market offers.
Slippage arises for two reasons. The price may move in the fraction of a second between your instruction and its execution, or your order may be larger than the quantity available at the best price, forcing it to fill progressively at successively worse prices.
Slippage is not always unfavourable. Prices can move in your favour in that instant as well. But when markets are disorderly, unfavourable slippage tends to be both more common and larger. Because slippage grows with the speed and thinness of a market, it is closely tied to the forces described in our article on cryptocurrency volatility.
The Liquidity Connection
Liquidity means how readily an asset can be bought or sold without shifting its price. It depends on how many offers are waiting in the order book and how tightly they are clustered around the current price.
In a deep, liquid market, a market order encounters plenty of offers close together and fills at close to the expected price. In a thin market, the offers are sparse and spread out, so the same order must reach much further to be filled, producing greater slippage.
Liquidity is not constant. It varies by asset, and it varies through the day and week. It commonly thins out overnight, on weekends and around public holidays, and, importantly, it can evaporate precisely when markets are most turbulent and people most want to transact.
Behaviour in Volatile Conditions
Both order types behave differently when markets move sharply, and both can disappoint in ways that surprise people.
Market orders in volatile conditions still tend to be filled, but the price achieved may be well away from the displayed price. During severe disruption the gap can be substantial.
Limit orders in volatile conditions protect you from that gap, but introduce a different problem. A price can jump straight past your limit without trading there at all, leaving you unfilled while the market carries on without you. This is sometimes called “gapping”, and it is one reason a limit order should never be relied on as protection against a falling market.
A Worked Example of Each
The figures below are round illustrative numbers chosen to show the mechanics clearly. They are not real market data, and they are not a forecast of any price.
Example 1: A Market Order
Imagine an asset displayed at $100, and someone wants to buy 10 units immediately. The order book shows 4 units offered at $100, 3 units at $101 and 3 units at $102.
A market order fills all three levels: 4 units at $100, 3 at $101 and 3 at $102, for a total of $1,009. The average price paid is $100.90 rather than the $100 displayed. The order was completed in full, but at 0.9 per cent above the headline price. In a thinner market the gap would be wider.
Example 2: A Limit Order
Now imagine the same asset displayed at $100, and someone is willing to buy 10 units only at $98 or less. They place a buy limit order at $98.
Three outcomes are possible. If the price drifts down to $98, the order fills at $98 or better and they pay no more than $980. If the price falls only to $99 and rebounds, nothing happens at all. And if only 6 units are available at $98 before the price turns, they receive 6 units and the remaining 4 stay outstanding. The price was controlled; the outcome was not.
Risk Considerations
- Neither order type reduces market risk. They govern how a transaction is carried out, not whether the position is a sound one.
- Displayed prices are indicative. The figure on a screen is the last or best available price, not a promise of what you will receive.
- Order size matters. A large order in a thin market can move that market against itself.
- Unfilled limit orders can be forgotten. An order resting in the book may execute much later under conditions you would no longer choose.
- Terminology and behaviour vary. Order types, fee treatment and handling during outages differ from one provider to another. The criteria for evaluating a trading provider and the questions worth raising before depositing funds are both relevant here, as is the risk disclosure.
- Automation does not remove these constraints. Systems described in our overview of AI and market technology still submit orders into the same order book, subject to the same liquidity.
Further explanations of these mechanics are available throughout the learning centre.
Summary
- A market order prioritises immediate execution and accepts whatever price is available; a limit order prioritises price and accepts that it may not be filled.
- Slippage is the gap between the expected and actual price, and it mainly affects market orders.
- Liquidity determines how much slippage occurs, and it can thin out sharply at quiet times and during turbulent ones.
- In volatile conditions market orders may fill well away from the displayed price, while limit orders may be skipped entirely as prices jump past them.
- Neither order type reduces the underlying risk of the market; each simply changes which uncertainty you accept.