Market orders allow you to get into the market quickly and enable you to capitalise on an impending move.
Overview
- Market orders are used to enter a trade at the best available price and are executed immediately.
- Market orders are filled using liquidity on the order book, from existing limit orders.
- Market orders are useful if you need to get in on a trend immediately or position yourself for an impending move. You should only buy or sell at market if getting in at a certain price is less important than getting an order filled.
- Once a market order is fulfilled, the trader is known as a 'market taker' - who takes liquidity from the order book and is charged a fee once the order is complete.
Market Order Example
Suppose BTC-USD is trading at $10,000 and the lowest ask is at $10,001 for 0.1 BTC while the highest bid is at $9,999 for 0.1 BTC.
Once you submit a market order to buy 0.1 BTC, you order will be processed instantly at the best available ask price, which would be $10,001. If you submit a market order to sell, it will be handled immediately with the best bid price, which is $9,999.
However, suppose you want to buy 0.2 BTC. The lowest ask at $10,001 will only fulfil half of the order, so the next lowest ask will be used to complete the rest of the market order. Suppose the second lowest ask is at a price of $10,005, then the average entry will be ($10,001+$10,005/2) = $10,003.
While market orders will always be filled at the best available price, it depends on the liquidity provided by limit orders in the order book. To exit the long position, you can use a market order to sell at any time.
How to Use a Market Order
Market orders can be executed on the Interdax platform using the order panel on the top left-hand side.
Click on 'Market'.
You can then enter the position size of your trade by entering a figure into the ‘Quantity’ box of the order panel.
Once you have selected whether you want to go long or short at the current market price, you can then use ‘Buy Market’ or ‘Sell Market’ to submit your order. The cost of the order, the value of the order, and the available balance are displayed in the lower part of the order panel.
If you hover over ‘Buy Market’ or ‘Sell Market’, some details will be shown including the amount of contracts you are buying, including the instrument and the liquidation price after executing the order. Once you click on 'Buy Market' or 'Sell Market' a confirmation screen will appear.
Once your order is confirmed, it will be executed immediately at the best available price and the trader making a market order is known as a 'market taker'.
You will get two notifications on the bottom right-hand side, one for the submission of the order and one for when the order has been filled.
Your position will then appear in the ‘Positions’ tab at the bottom of the interface.
To close the position at the best available price, click on ‘Market’ in the positions panel.
Since a market order is settled immediately, it will not go onto the order book. If you buy at market, the lowest ask on the order book will fill your order. If you sell at market, the highest bid on the order book will fill your order.
Market orders are useful if you identify an opportunity that is likely to play out imminently, if there is a significant breakout or there is a sign that volatility is increasing.