Market and limit orders are two critical trading terms to be aware of before you begin trading. How you decide whether to use a limit order or a market order will depend entirely on what you are trying to achieve.
Simple order form showing the Market/Limit toggle button
What is a market order?
A market order is designed to be executed immediately. It is meant to buy or sell at the best available price in the order book (which you can view before placing an order). Note that this is different from the last traded price. A common beginner mistake is to think the last traded price is what you will get when placing a market order. The order book can change significantly since the last traded price, especially in less popular trading pairs.
An order book is comprised of all traders' limit orders (see below) for that trading pair.
The drawback of a market order is that you’re not guaranteed the exact price you’re trying to buy or sell at. It all depends on what is available in the order book when your order is being executed.
What is a limit order?
A limit order lets you buy or sell at a fixed price that you determine, and sometimes you’ll get a better price depending on how the market moves.
The advantage of limit orders over market orders is that you know what you will get in terms of price: limit orders guarantee you won't be matched with a worse price than what you specified.
You can also use limit orders to wait for the market to reach a certain price target, rather than just taking whatever is available in the present.
The disadvantage of limit orders is that there's no guarantee the order will completely fill (or fill at all).
Learn more about how to set Limit prices.
Example: Using limit order to wait for better price
If the lowest current ask for XBT/USD is $96, but you think you can get your buy order filled at a lower price, you might put in a limit buy order at $94.
Image: creating a limit buy order with a price of 94.00 USD on the XBT/USD market
Example: Using limit order to enter a short position
If the highest current bid for XBT/USD is $95 and you want to open a short position at $110, this can be done by placing a leveraged limit sell order at $110. This order will start to fill at $110 (or better) once bids at $110 (or higher) appear in the order book.
However, if you want to create a short position if prices falls below the current market rate, then you'll need to use a stop loss order type instead.