Market order vs. limit order: How to choose to minimize losses in trading?

As a trading novice, the most common mistake is confusing market orders and limit orders, resulting in one buying too high and the other not getting filled. Actually, the logic behind these two types of orders is quite simple—understanding it can help you avoid many pitfalls.

What exactly are market orders and limit orders?

Simply put, a market order is “execute immediately,” a limit order is “execute under certain conditions.”

Taking EUR/USD as an example, if the current bid is 1.09402 and the ask is 1.09400, a market order trader will execute at this price directly—no fuss. But this means that by the time you press confirm, the price might have already changed. Markets change rapidly; the quote you see and the actual transaction price may differ, which is called slippage—sometimes beneficial, but mostly harmful.

Limit orders are different. They let you decide your ideal purchase price. For example, if you think an asset should be bought at 50 units, you can place a limit buy order at 50. It will only execute if the price drops to that level. If the market never drops to 50, your order stays pending—that’s the cost of limit orders: no guarantee of immediate execution.

Limit orders come in two types:

• Buy limit: buy at a specified price or lower
• Sell limit: sell at a specified price or higher

Which order type is more profitable? Practical comparison

It seems that both market and limit orders have their reasons, but how to choose in actual trading?

Advantages and risks of market orders:

• ✓ Fast execution, especially suitable during volatile market movements (big news or shocks)
• ✗ Cannot predict the final transaction price, you might buy at a higher price
• ✗ In high volatility markets, prone to unfavorable prices
• ✗ Beginners tend to chase highs and sell lows, paying the price for impulsiveness

Advantages and risks of limit orders:

• ✓ Precise control over transaction price, protecting profit margins
• ✓ Especially suitable for ranging markets, allowing repeated low buy and high sell within the range
• ✗ Uncertain execution—your order may never fill despite expectations
• ✗ Suitable for patient traders; traders who can’t monitor the market constantly may have an advantage

The core conclusion is: If you need to enter quickly or during sudden market moves, use a market order; if you want to control costs or follow a long-term strategy, use a limit order.

How to use limit orders? Practical case demonstration

Step 1: Determine your target price

This is crucial. The price should not be based on guesswork but on technical analysis (support/resistance levels), fundamentals (asset value), and liquidity considerations. For example, if EUR/USD is at 1.09400 and you expect it to fall to 1.09100, you can place a buy limit order at 1.09100.

Step 2: Choose a reliable trading platform

Different platforms have varying order execution speeds and spreads, which directly affect your costs. Ensure the platform has good liquidity and risk management tools.

Step 3: Set your order and wait for execution

Go to the trading interface, select “Pending Order” or “Limit Order,” input your price, and confirm. Then you can close the software and wait for the market to hit your target.

Practical tip: Limit orders are best used in ranging markets. Suppose an asset fluctuates between 50 and 55 units; you can place buy orders at 50 and sell orders at 55, capturing profits on each oscillation. This saves you from constantly monitoring the market.

How to use market orders? When to act

Using a market order is straightforward: go to the trading page, select “Market Order,” input the volume and leverage, and confirm. The transaction price is determined by the market; the price you see is just a reference, and the actual fill may differ.

Best scenarios for using market orders:

When major news or data releases occur, asset prices can surge or plunge instantly. In such cases, manually entering a price can’t keep up with market changes. Using a market order allows you to get in or out quickly, avoiding being completely caught off guard.

But beware of the risk of reversal after a spike. Many traders chase the market with market orders, only for the price to turn suddenly, turning them into bagholders.

Trading risks and key tips

Risks of limit orders: The biggest risk is that they may never fill. If your target price is too far from the current market, the order may never be reached, resulting in a missed opportunity. Also, during extreme market moves (like gaps), limit orders may execute at skipped prices, potentially causing losses.

Risks of market orders: In low-liquidity assets, slippage can be significant. During high volatility, price changes can be several points in a flash. Also, beware of emotional trading—impulsive market orders driven by fear or greed can lead to bigger losses.

General advice: Regardless of order type, always set stop-loss and take-profit levels to keep risks manageable. The biggest danger in trading is not losing money but not knowing how much you might lose.