Market Orders vs Limit Orders: How They Work in Order Books

Ben Bevan 4 October 2025 15 Comments

Market vs Limit Order Simulator

Market Order

Executes immediately at the best available price. Guarantees execution speed but exposes you to slippage.

Immediate execution
No price control
Takes liquidity from order book

Limit Order

Only executes at a specified price or better. Provides price control but may not execute.

Price control
No immediate execution
Adds liquidity to order book

Scenario Simulation

Current Market Price ($):

Order Quantity:

Limit Price ($):

Liquidity Risk Level:

Simulation Results

Click "Simulate Order Execution" to see how your order would behave under different conditions.

Order Comparison Table

Attribute	Market Order	Limit Order
Execution Speed	Immediate (milliseconds)	Occurs only when price reaches limit
Price Certainty	None - price set by market	Exact or better (buy ≤ limit, sell ≥ limit)
Slippage Risk	High in low-liquidity markets	None - order won't fill if price moves away
Liquidity Impact	Takes liquidity (removes existing limit orders)	Adds liquidity (creates new bid/ask level)
Typical Use Case	Urgent entry/exit, market-on-close trades	Targeted entry, profit-taking, stop-loss placement

Key Takeaways

Market orders guarantee immediate execution but expose you to slippage.
Limit orders give price control but may never fill.
Both order types shape the order book: market orders take liquidity, limit orders add it.
Choose based on speed needs, market depth, and your risk tolerance.
Combine with stop‑limit or market‑if‑touched orders for more nuanced strategies.

Understanding the Two Order Types

When you click ‘Buy’ or ‘Sell’ on a trading platform, you’re actually sending a set of instructions to the market. Two fundamental instruction styles dominate every exchange:

Market order is a type of trade instruction that executes immediately at the best available price. It’s the go‑to choice when you need certainty that the trade will happen now.

Limit order is a type of instruction that only executes at a price you specify-or better. It lets you name your price but leaves the timing up to the market.

Both orders live inside the order book, a real‑time list of every pending buy (bid) and sell (ask) offer for a security. The order book is the engine that matches buyers and sellers.

How Market Orders Interact with the Order Book

When you submit a market order, the matching engine scans the book from the best bid (for a sell) or best ask (for a buy) downwards until it can fill the requested quantity. Each match consumes the existing limit orders sitting in the book-this is why market orders are called “liquidity takers.”

Because the order trades against whatever is available, the execution price can jump if the book is thin. In a highly liquid stock with a tight spread, the price you pay is usually within a few ticks of the quote. In a thin crypto pair, the same market order might walk the book several levels, producing noticeable slippage.

Key characteristics of market orders:

Immediate execution during market hours.
Full quantity filled unless the book runs out of liquidity.
No expiration-once placed, the order is either filled or cancelled instantly.

How Limit Orders Interact with the Order Book

Placing a limit order adds a new line to the order book. If you set a buy limit at $50.00, the engine records a new bid at that price. Other traders can then hit your bid with market orders, or their own limit orders can sit alongside yours.

Limit orders are “liquidity providers.” Because they sit in the book, many exchanges reward them with maker rebates - a small fee credit for adding depth. The downside is that the order sits idle until the market reaches your price, or until you cancel or it expires.

Typical features of limit orders:

Price control - you define the worst price you’re willing to accept.
Duration settings - day, good‑til‑canceled (GTC), or a custom expiration.
Partial fills - if only part of the order matches, the remainder stays open.

Comparing Execution Speed and Price Certainty

If you rank the two orders on a simple axis, market orders score high on speed but low on price certainty. Limit orders are the opposite: they guarantee you won’t pay more (or receive less) than your limit, but you might never trade at all.

In practice, the choice often hinges on market depth. A liquid asset with a 0.01% spread means a market order will likely fill at a price within a few cents of the quoted ask. In that scenario, the speed advantage outweighs the tiny price risk. Conversely, for a low‑volume alt‑coin with a 5% spread, a market order could cost you a lot, making a limit order the smarter tool.

Managing Slippage and Liquidity Risks

Slippage is the difference between the price you expect and the price you actually receive. It pops up when the order size exceeds the immediate depth at the best price level. Traders can estimate potential slippage by looking at the cumulative volume column in the order book.

Liquidity risk goes hand‑in‑hand with slippage. When the book is thin, a market order can move the price significantly, creating a feedback loop that widens the spread. Limit orders help smooth this by adding depth, but they also lock up capital until they fill.

Practical ways to curb slippage:

Trade during peak hours when volume spikes.
Split large orders into smaller chunks.
Use limit orders with a small price buffer (e.g., a few ticks above the current ask for buys).

Choosing the Right Order Type for Different Strategies

Here’s how common trading goals line up with order choices:

Quick exit during a breakout - market order, because you need to leave before the price reverses.
Buying on a support level - limit order at or below the support price.
Scaling into a position - a mix: start with a market order for a small chunk, then place limit orders for the rest.
Capturing a profit target - limit sell order at the desired price, often combined with a stop‑loss.

Advanced traders also layer “stop‑limit” or “market‑if‑touched” orders to blend the benefits of both types. Those hybrid orders still respect the core difference: market execution guarantees speed, limit execution guarantees price.

Practical Tips for Using Market and Limit Orders

Regardless of your skill level, keep these habits in mind:

Check the order‑book depth before placing a large market order.
Set realistic limit prices - look at recent highs/lows and the order‑book's volume profile.
Watch the bid‑ask spread; a widening spread indicates rising volatility and higher slippage risk.
Be aware of after‑hours sessions. Prices can gap, turning a market order into a surprise fill.
Remember that funds for open limit orders are reserved, reducing your buying power.

Side‑by‑Side Comparison

Market orders vs limit orders - key attributes
Attribute	Market Order	Limit Order
Execution speed	Immediate (milliseconds)	Occurs only when price reaches limit
Price certainty	None - price set by market	Exact or better (buy ≤ limit, sell ≥ limit)
Slippage risk	High in low‑liquidity markets	None - order won’t fill if price moves away
Liquidity impact	Takes liquidity (removes existing limit orders)	Adds liquidity (creates new bid/ask level)
Typical use case	Urgent entry/exit, market‑on‑close trades	Targeted entry, profit‑taking, stop‑loss placement

Frequently Asked Questions

What happens to a market order if the order book is empty?

If there are no opposite‑side limit orders, the market order will sit pending until a counter‑party places a matching limit order or the exchange opens a new trading session. During that waiting period, the order may be canceled by the trader.

Can a limit order guarantee a fill?

No. A limit order only guarantees the price ceiling (or floor). If the market never reaches that price, the order stays open or expires unfilled.

Do market orders always pay the spread?

Generally yes. A market buy hits the best ask, a market sell hits the best bid, so the spread is built into the execution price. In very fast markets the spread can widen at the moment of execution.

How do maker rebates work for limit orders?

Exchanges reward orders that add new liquidity (the "maker" side) with a small fee credit. The rebate reduces the overall cost of trading and encourages deeper order books.

When should I prefer a limit order over a market order?

Choose a limit order when price matters more than speed - for example, buying near a support level, setting a profit target, or trading illiquid assets where slippage could be costly.

The battle between market orders vs limit orders isn’t about finding a universal winner. It’s about matching the order type to your market view, risk tolerance, and the liquidity profile of the asset you trade. By reading the order book, gauging spread, and planning your execution, you can turn this simple choice into a strategic advantage.