What is a market order?
A market order is an order to instantly buy or sell at the best available price.
It is executed based on the limit orders that are already located in the order book, meaning that market orders depend on market liquidity to be completed.
This generally means you’re willing to accept the next available price and a certain price isn’t guaranteed especially for large orders.
When to best use market order?
Market order is convenient in situations where getting your order to be filled quickly is more important than getting it filled at a certain price.
This means that you should only use market orders if you are in a hurry and willing to risk for price uncertainty.
What is a limit order?
A limit order is an order to buy or sell a certain amount of cryptocurrency at a specific price or better.
This means that you are setting a "limit" on the maximum price you are willing to pay to buy cryptocurrency or the minimum price you are willing to receive to sell your cryptocurrency.
Unlike a market order, where trades are executed instantly at the current market price; limit orders are placed on the order book and are not executed immediately.
When to best use limit order?
You may use limit orders to buy at a lower price or to sell at a higher price than the current market price.
Limit order would remain active until the limit price is hit or the order is cancelled. Therefore, only use when you are not in a hurry to buy or sell assets immediately.
What is a stop order?
A stop order allow users to automatically place a limit order when a stop price is reached.
Once you set a stop price and limit price. When the price hits the stop price, a limit order will be placed automatically, even if you are logged out or offline.
When to best use stop order?
Investors often use stop limit orders in an attempt to:
1. Limit a loss: If you only want to lose maximum 5% of the trade that you just entered, you can set a stop order to create a limit sell order when the stop price is hitting 5% below your purchase price.
2. Protect a profit: Many times when an asset price is drastically increasing, investor has 2 difficult choices: to sell the asset and realize a profit, or to wait until the price goes higher to sell at a larger profit. You may use a sell stop order to sell the asset at an acceptable price, in case that it does a sharp U-turn from going up to going down, at least you book the profit.
3. Buy on strength: Usually an asset price would go significantly higher once it breaks a strong resistance line. You may use a buy stop order slightly above the resistance line so that it can automatically buy the asset and avoid missing the momentum.