Understanding the Difference between Market Order, Limit Order and Stop Order

If you are planning to build your crypto exchange, you are more likely to be aware of the requirement to integrate the order types into your exchange. Given the various types of orders, you may wonder what is the difference between these order types and which one should you integrate into your white label crypto exchange software.

In this article, we will understand the order types and the right one that complements your requirements. But, let’s brief you about the orders first.

A cryptocurrency exchange is a platform to buy and sell cryptocurrencies. But how do you find out that a user wants to buy or sell his/her assets? It’s through orders – buy orders and sell orders. A buy order signifies the need to buy a crypto asset whereas a sell order depicts the need to sell a specific cryptocurrency. The buy and sell orders are placed on an order book and are fulfilled by matching buyers with the right sellers and vice versa.

Orders are categorized into different types – each order type possesses its own rules to fulfill and process a trade. The most common types of orders include market order, limit order and stop order. Let’s understand the difference between the three of them.

Market Order

A market order is the simplest type of trade. A buy or sell market order is immediately fulfilled at the current market price.

For example, a user wants to buy 0.5 BTC and the market price of 0.5 BTC is US$ 5,000. If the buyer places a market order for the same, the order will get executed right away as the seller offers 0.5 BTC at US$ 5,000. Similarly, a market sell order is processed in the same way, except in this case the seller sells 0.5 BTC at the market price.

With the market order, slippage might occur. Slippage refers to the difference between the expected price and filled price. It means that the user may get a price less than or more than the desired price.

Limit Order

A limit order is the most popular type of order for both white label crypto exchange software and new exchange platform built from scratch. A limit order is executed when the market reaches a specified price or better. A buyer sets a fixed order price to get the desired price and the order is placed on the order book until it is fulfilled by the right seller.

For example, an exchange user wants to sell 2 ETH and the market price of each ETH token is US$ 180. The user sells limit order at US$ 200 per ETH. The 2 ETH will only be sold if the price reaches US$ 200 or more.

The benefit of a limit order is its immunity to slippage.

A limit order can be either partially or completely fulfilled. You can choose from the following options:

Good Till Canceled: the order is placed on the order book and is valid until the user cancels it.
Good Till Time: the user sets the time and the order is placed until it is fulfilled or the time runs out.
Immediate or Cancel: the order is placed on the order book and is canceled if not fulfilled immediately.
Fill or Kill: the order is fulfilled only if the entire amount is matched.
Stop Order

A stop order is made when the market price matches a “stop price” or the desired amount to buy or sell cryptocurrency. When the market price reaches the stop price, the stop order becomes the market order and is filled instantly.

Like market orders, stop orders are vulnerable to slippage. As the buy/sell order is fulfilled as soon as the market reaches the stop price, the users may not get the best deal.

Market Order, Limit Order or Stop Order – Which one should you choose for your Exchange?

Whether you are considering building an exchange from ground zero or planning to opt for white label crypto exchange development, you will have to decide upon the order types to be integrated into your exchange.

Each type of order comes with its own set of advantages and disadvantages. Market orders are subject to slippage but are fulfilled immediately. Stop orders are also vulnerable to slippage but can be an easy exit or entry strategy. Limit orders can be difficult to use during the bullish crypto market but are ideal for the exchange because they are immune to slippage and help exchange users get the best trading price. You need to understand your needs to decide upon the right order type for your exchange.

At Antier, we offer white label crypto exchange software with built-in order types for a market order, limit order and stop order. Besides, our scalable exchange platform enables easy integration of your preferred order type. We also specialize in building highly-secure, feature-rich exchange from scratch, underpinned by your desired order type. However, if you are on the fence about the right order type, our Blockchain experts with in-depth domain knowledge and expertise can guide you through the process.