People new to cryptocurrency trading face too many terms and concepts that can be difficult to understand at first. This article will explain the main concepts of market and limit orders and the roles of makers (https://whitebit.com/market-making-program) and takers in the crypto market.
What are Market Orders?
When you enter a crypto exchange application to buy or sell crypto, you usually open a market order. A market order is an order to buy or sell a cryptocurrency at the best available current market price. Such orders are executed immediately and at the best price of the existing orders in the order book. The main advantage of a market order is its quick execution.
What are Limit Orders?
Limit orders are orders to buy or sell a digital asset at a specific price or a better price. When placing a limit order, traders specify the exact price at which they are willing to buy or sell assets. This type of order will only be executed if the market price meets or exceeds the conditions the trader sets. If the market does not reach the specified price, the order remains open in the order book until it is either filled or the trader cancels it.
Limit orders allow traders to control the price they trade, helping them manage risk and potential returns. They also add liquidity to the market by providing a pool of orders that can be filled over time.
So, limit orders add liquidity to the market, while market orders, executed immediately at the current best available price, remove liquidity from the market.
Maker vs. Taker
Let’s find out the difference:
- Takers. Takers place market orders and execute them at a presently available price. They do this by matching with existing orders (either buy or sell orders) already placed by others (makers). Takers do not add orders to the order book. Instead, they fulfill orders already listed, thus “taking” the orders and removing liquidity.
- Makers. When traders set limit orders, they specify the exact price at which they are willing to buy or sell an asset, and these orders go to the order book. Makers “make” the market by providing liquidity. Their orders are not executed immediately but wait in the order book until another trader (a taker) matches them. Makers contribute to the depth and liquidity of the market by creating orders that takers can fulfill.
Makers’ trading strategies are designed to add liquidity to the market and ensure buyers and sellers can trade at any time at the market price. Takers, in turn, don’t supply liquidity to the market but take it, fulfilling the orders at the current price.
