What is the difference between Market Order and Limit Order in Trading?

What is the difference between Market Order and Limit Order in Trading

When trading, you use the various types of orders that you input through the app as orders to the broker to execute your offer. Some of the popular order types are limit orders and market orders .

Both have different functions in signaling bids. Moreover, each of them provides advantages that will benefit you if used in the right momentum.

Therefore, you need to know more about the types of orders that exist, Friend Cuan. To make your trading more fun, let’s get acquainted with limit orders and market orders and when you should use them.

What is a Limit Order?

Limit orders are a feature that you can use to bid on stock prices or other assets in a centralized market. This feature is suitable for those of you who have a lot of work but still want money.

You can use this feature to trade seriously without having to sit in front of the screen waiting for the momentum to input offers. This feature allows you to set a higher selling price than the current price, or vice versa.

The selling price and buying price that you input according to your perspective will be executed by the broker when the market price enters that price level. Of course, if it turns out that the price movement has missed your expectations, your transaction will not be processed.

However, if you want a faster transaction, you can use another feature, namely market orders.

What is Market Order

A market order is an instruction that you input to a broker to buy or sell shares, bonds, and other types of assets at the current price. The cool term is ‘HAKA’ aka hit right, which is a type of order that can be executed directly by the broker.

This feature is most commonly used by investors in the capital market, especially if your target stock or instrument has a lot of interest. Using market orders will make offers no need to wait in long lines.

So you don’t have to worry about running out of stock while waiting for the price to be at your predicted level as if you were using a limit order. You can also use this feature if you know when is the right moment to enter the market. You just enter the market order when the momentum comes. Practical and fast, right?

Difference between Limit Order and Market order

Based on the explanation above, both have differences in terms of execution. When you decide to buy an investment product through a centralized marketplace, you can do so in two ways.

The first way is to determine the price through a limit order, with a note that your transaction may fail if the price does not reach the limit you estimated. Or, you can do it the second way through a market order so that the broker can execute it immediately.

Both have their respective advantages. Considering that a centralized market doesn’t allow you to bid on a price like a traditional market, limit orders are a way for you to still get the best deals there.

However, if you have plenty of time to navigate through the market charts and enter with market orders at the right time, you can still leverage money .

The Right Time to Use Limit Orders and Market Orders

Using the right order feature really depends on your trading style . However, both have preferences when it is best to use them.

Limit Order

Some brokers offer a limit order feature of up to three months. Which means, your offer is still valid for that long until the asset price reaches the level you want. Therefore, this feature is effectively used to ensure you enter and exit the market at the exact price level you want.

Limit orders are also effective for stocks or less liquid instruments. Stocks that are in less demand or when the market is low are usually boring to watch. You can use a limit order so that you can leave the market without worrying about your investment funds losing out. Because, the broker will execute if your limit is reached.

But, you also have to pay attention to commissions or broker fees which are usually larger if you use this feature. Hence, this feature is more often used by traders with large holdings. If it is done with large volumes it is more cost efficient.

Market Order

In a liquid market or an instrument with a lot of interest, market orders are the right choice. Price volatility in a crowded market is certainly interesting to observe.

You will not be bored waiting for the momentum to come to enter the market and then input the current price so that the broker will immediately execute it. This order is very popular among investors, especially retail investors.

If you really believe in the fundamentals of an investment destination company, or a crypto asset that is on the rise, why delay getting one?

However, using a market order when the market is low or the stock is less attractive can sometimes even make your transaction executed at a different price level. Although rare, sometimes things like this cause losses.

The good side is, you are usually charged a cheaper fee and commission if you bid with a market order. Besides being fast to execute, this feature is more efficient, so it is more in demand, especially by novice traders.

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What do you think?

Written by Hilman Wijaya

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