Here’s a clear breakdown of how Market, Limit, Stop-Loss (SL), and Take-Profit (TP) orders work in trading:
1. Market Order
What it does:
- Buys/sells immediately at the current best available price.
- Guarantees execution (but not price).
When to use:
- When speed is priority (e.g., news events).
- For highly liquid assets (e.g., BTC/USDT).
Example:
- Current BTC price: $110,000.
- You place a market buy → Fills at 110,010 (due to slippage).
2. Limit Order
What it does:
- Buys/sells only at your specified price or better.
- No execution if price isn’t reached.
When to use:
- To buy/sell at a target price.
- Avoids slippage.
Example:
- You set a limit buy at $109,000 for BTC.
- Order fills only if price hits $109,000 or lower.
3. Stop-Loss (SL) Order
What it does:
- Automatically sells to limit losses if price hits a specified level.
- Converts to a market order once triggered.
When to use:
- Risk management (e.g., sell BTC if it drops 5%).
Example:
- You hold BTC at $110,000 and set SL at $105,500.
- If price drops to $105,500 → Sells at next available price (e.g., $105,490).
Variation:
- Stop-Limit Order: Sells at a specific price after triggering (e.g., trigger at $105,500, sell at $105,400).
4. Take-Profit (TP) Order
What it does:
- Automatically sells to lock in profits at a target price.
- Usually a limit order (executes at or above target).
When to use:
- To secure gains without monitoring charts.
Example:
- You buy BTC at $110,000 and set TP at $115,000.
- If price hits $115,000 → Sells automatically.
Comparison Table
Order Type Execution Price Guaranteed? Purpose
Market Current best price Yes (execution) Fast entry/exit.
Limit Your specified price No Precision trading.
Stop-Loss After trigger (market) No Limit losses.
Take-Profit Your target (limit) No Lock profits.
Pro Tips
1. Combine SL + TP: Set both to automate risk/reward (e.g., "1:3 ratio").
2. Slippage Warning: Market/stop orders may fill worse than expected in volatile markets.
3. Hidden Stops: Some exchanges offer "stop-limit" to control execution price.
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