Limit orders, market orders and the choice between them

A market order says fill me now at whatever is available. It crosses the spread, consumes resting liquidity, and is therefore always charged the taker fee. You are certain to be filled in any market with liquidity in it, and you have no control over the average price you end up with. In a deep market that uncertainty is a few basis points. In a thin one, or during a fast move, it can be far larger than the edge you were trying to capture.

A limit order names a price and will not fill worse than it. A limit buy at ninety-nine thousand nine hundred and ninety fills at that price or lower, never higher. If nothing reaches your price the order sits on the book and waits, possibly forever. When it does rest and then fill, you were the maker and you are charged the maker fee. Price is guaranteed, execution is not, and that is the entire difference.

Suppose the best bid is ninety-nine thousand nine hundred and ninety and the best ask is one hundred thousand and ten. A market buy of one unit fills at the ask, one hundred thousand and ten, plus the taker fee. A limit buy at ninety-nine thousand nine hundred and ninety joins the bid: if a seller comes to you, you save the twenty dollar spread and the fee difference on top. If instead the price runs to one hundred and one thousand, you saved twenty dollars and missed a thousand. Both outcomes are the same decision, seen from different sides of a coin flip you made deliberately.

Time in force decides what happens to the unfilled part of an order, and the modifiers decide what the order is allowed to do at all.

• Good till cancelled: rests on the book until it fills or you remove it
• Immediate or cancel: fills what it can right now, cancels the rest
• Fill or kill: fills the whole order at once or nothing at all
• Post only: cancels rather than crossing, so the maker fee is guaranteed
• Reduce only: can shrink or close a position but never open or flip one

Use a limit order to enter at a level you identified in advance, where being early or missing it entirely are both acceptable. Use a market order to get out of risk, because at that moment the price matters less than the position ceasing to exist. Use a limit order in any market where the book is thin, since a market order there is an invitation to pay the whole spread and then some. Around a scheduled announcement neither order is safe, and the correct adjustment is size rather than order type.

Reduce-only deserves its own mention because it prevents a specific and common accident: an exit order that arrives after the position has already been closed, and therefore opens a fresh position in the opposite direction. Anyone who has woken up unexpectedly short after a stop and a take-profit both triggered has met this. Flagging every exit order reduce-only makes it structurally impossible.