A market order is a request for gold or bitcoin at any price starting from the cheapest. It buys's or sell's everything instantly for any price that other people are selling or buying for.
This is the fastest way to buy or sell, especially when the market price is moving quickly. Be careful using this order type. You might buy or sell at a price you don't want to. Keep an eye on the order book to see the volume available for purchase or sale.
A limit order is an order to trade a specific amount of bitcoin or gold at a limited price.
This means if you set a price to buy gold, you will never buy gold at a price higher than you have set a limit for.
If you sell gold, you will never sell gold below your set selling price limit.
The problem with a limit order is that if the market price is moving fast your orders can be left behind, meaning you could end up paying more after canceling your order and re-submitting it at a new height or lower price. If a market is fairly stable then limit orders are a great way to get a trade settled for the price you are looking for.
Below we have an order book of people wanting to sell their gold. We show a price and the amount they want to sell their gold for.
* Note that everyone wants to sell their gold for the highest price possible while buyers want to buy gold at the lowest price possible.
In the above table, the cheapest price someone is willing to sell gold at is 0.09 bitcoin per gram and they want to sell 1 gram.
Let's say you want to buy gold for 0.2 bitcoin.
If you set a limit order to spend 0.2 bitcoin at the price of 0.1 bitcoin per gram then we would buy up the bottom two orders (2 gram for 0.19 bitcoin in total). The rest of your order 0.01 bitcoin would be entered as buy order and wait for a seller to come along who is willing to sell you gold for 0.1 bitcoin per gram.
If you set a market order for 0.355 bitcoin worth of gold then the system would buy all the way up the order book until you have purchased all gold worth 0.355 bitcoin. The price does not matter in a market order.
So in above table you would buy would buy:
- 1 gram for 0.09 bitcoin per gram
- 1 gram for 0.1 bitcoin per gram
- 1.5 gram for 0.11 bitcoin per gram
- Total: 3.5 gram for 0.355 Bitcoin
The system will always buy you the cheapest first. But your order is guaranteed to be filled if there are enough orders in the order book wanting to trade.