Definition
A market order is a basic type of trading instruction that tells an exchange to execute a buy or sell immediately at the best price currently available. Instead of specifying an exact price, the trader accepts whatever price is offered in the orderbook at the moment the order reaches the market. Market orders are commonly used on centralized exchanges (CEX) where there is continuous trading activity and visible price quotes.
Because a market order prioritizes speed of execution over price, the final trade price may differ slightly from the last quoted price. This difference is influenced by factors such as spread between the best bid and ask and the depth of liquidity at each price level. In fast-moving or thinly traded markets, this can lead to noticeable slippage between the expected and actual execution price.
Context and Usage
On most CEX platforms, market orders interact directly with existing limit orders in the orderbook, consuming available liquidity until the requested amount is fully filled. The larger the market order relative to the available liquidity, the more price levels it may move through, which can increase slippage. Traders often consider current spread and recent price volatility when deciding whether a market order is appropriate.
Market orders are used in both spot markets and derivatives markets such as futures, where they trigger immediate entry or exit from a position at the prevailing market price. While they simplify execution by removing the need to choose a specific price, they also reduce control over the exact fill price, making an understanding of orderbook conditions and potential slippage important for managing trade outcomes.