DADA
Market and Limit Orders
Before placing a trade, it is important to understand how orders work. Different order types control when and how a trade is entered, and each has its own advantages and limitations.
What Is an Order?
An order is an instruction sent to a broker or trading platform to buy or sell a financial instrument.
The type of order selected determines when the trade may be executed and at what type of price.
Orders help traders control how they enter and exit the market.
Market Orders
A market order is an instruction to buy or sell at the best available price in the market at that moment.
Execution First
The main goal of a market order is to enter or exit quickly rather than wait for a specific price.
A trader sees an asset trading around $100 and places a market buy order. The order may execute close to $100, but the final price can differ slightly if the market is moving quickly.
What Is Slippage?
Slippage is the difference between the price a trader expects and the price at which an order is actually executed.
Slippage can occur when markets move quickly or when there is limited liquidity at the expected price.
Limit Orders
A limit order tells the platform that the trader wants to buy or sell only at a specified price or better.
Price First
A limit order gives the trader more control over the price, but the trade may never execute if the market does not reach that level.
Buy Limit Example
A buy limit order is normally placed below the current market price.
The order would only be eligible to execute if the market falls to the specified limit price or a better available price.
Sell Limit Example
A sell limit order is normally placed above the current market price.
The order may execute if price rises to the specified limit level or a better available price.
Market Order vs Limit Order
Market Order
- Designed for quicker execution.
- Does not guarantee an exact price.
- Can experience slippage.
- Useful when execution speed matters.
Limit Order
- Provides greater price control.
- May not execute at all.
- Waits for a specified price.
- Useful when price matters more than speed.
Pending Orders
A limit order that has not yet been executed remains pending until one of several things happens.
- The market reaches the required price.
- The trader cancels the order.
- The order expires, if an expiry time has been set.
- The platform rejects or removes the order under its rules.
Orders Do Not Remove Risk
Choosing the correct order type can help organise a trade, but it does not make the trade safe.
Key Takeaways
- A market order prioritises execution speed.
- A market order does not guarantee an exact price.
- Slippage can occur during fast market movement.
- A limit order prioritises price control.
- A limit order may never execute.
- Buy limits are generally placed below the current price.
- Sell limits are generally placed above the current price.
- Order type does not remove trading risk.
DADA Trading Academy materials are provided for general educational purposes only and do not constitute personalized financial, investment or trading advice. Trading involves risk and losses are possible.