What Do Market Order and Limit Order Mean?

Market and limit orders are both ways to buy or sell a financial instrument, whether to enter or exit a trading position. Market orders are the most immediate: you buy or sell at the best currently available price. Limit orders allow you to specify a price, but you may have to wait until the market reaches it.

You can use both order types on Nadex.  A market order is the simplest order type. Market orders let you buy or sell as soon as possible at the best available price. To buy you pay the offer price. To sell you pay the bid price, which is generally lower.

What is the bid/ask spread?

This difference between the bid and ask/offer prices is called the bid/offer spread or the bid/ask spread. What are the bid and offer prices? Remember the rule, “Buy low, sell high.”

Buyers want to pay the lowest price they can. So buyers bid low.

Sellers want to get the highest price they can. So they offer to sell at a high price.

Market order prices are based on the bid/ask spread

So when you place a market order to buy or sell, you agree to pay the price the other side wants, in exchange for getting filled as soon as possible.

Buyers pay the price the seller is offering, the offer (or ask) price, which is the higher of the two.

Sellers will usually come down to whatever the current best bid is. Sellers sell at the bid.

Because of the bid/ask spread, you may find yourself slightly in the red when your order is filled. This reflects the initial gap between the price you entered at and the price you would pay to exit at that moment.

Nadex market orders have protection against slippage so you only get filled at or near the price you expected.

When should you use a limit order?

With a limit order you specify the exact price you'll pay and agree to wait for that price. You also accept the possibility your order might not get filled.

If you want to set a profit target at which to exit your trade, you can use a limit order to specify the exact price at which you want to exit. However, you’ll have to wait for the market to reach that price. If and when the market reaches your target your order will execute automatically. You should also bear in mind that the market may not reach your target price in time, prior to expiration.

You can't set a stop-loss target with a limit order, however. If you try, you'll get filled at that low price right away and be knocked out of the trade. Nadex traders don't need stop-loss orders since your loss protection is built-in.

Use a market order to enter as soon as possible at the best currently available price within a range.

Use a limit order to name your price knowing you may wait and you might not get filled.

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