A market order takes liquidity from the order book: a buy fills against the lowest asks and a sell against the highest bids. Small orders in liquid markets fill at or near the quoted price. Large orders, or any order in a thin market, can walk through several price levels, so the average fill ends up worse than the price you saw.
Example
ETH shows a best ask of $3,000.50 with 15 ETH available, then 20 ETH at $3,001 and 40 ETH at $3,002. A market buy for 50 ETH fills 15 at $3,000.50, 20 at $3,001 and 15 at $3,002, for an average of about $3,001.15. At a 0.05% taker fee, the fee is about $75.
Why it matters
Speed matters when a stop has to execute or a breakout is leaving without you. Market orders give certainty of execution. The cost is the spread, slippage and the higher fee, which matter most for frequent traders and small targets.
Common mistake
Using market orders for every entry out of habit. In a scalping strategy with small targets, paying the taker fee and the spread on both sides can turn a profitable edge into a losing one.
Put it into practice
FAQ
- Why did my market order fill at a different price?
- The order took the best prices available in the book at that moment. If the book was thin or price was moving fast, the fill spread across several levels.
- Are market orders bad?
- No. They are the right tool when getting in or out matters more than the exact price, as with stop losses. They just cost more than a filled limit order.
- How can I reduce the cost of market orders?
- Trade liquid pairs, avoid the seconds around major news, split large orders and use limit orders when you are not in a hurry.