Placing Orders on an Exchange: Maker and Taker

Trading pairs: coins priced in USDT

The trading pair BTC/USDT = buying and selling bitcoin with USDT (a dollar stablecoin). A crypto exchange matches orders 24 hours a day, 7 days a week, with no close.

Market order = taker: fills right away

A market order trades straight against orders already in the book, taking liquidity away. You're a taker, with higher fees and possible slippage.

Limit order = maker: waits in line

A limit order sits in the order book waiting for someone to trade with it, adding liquidity to the market. You're a maker, with lower fees, but if price never gets there it never fills.

The thinner the book, the bigger the slippage

A thinly traded coin has very little at each price level, so a big market order eats its way up level by level and pushes the average price higher. Here the slippage can cost more than the fee.

Key takeaways

• The trading pair BTC/USDT means buying and selling Bitcoin priced in USDT. Crypto markets trade 24 hours a day, 7 days a week.
• A market order is a taker: it fills immediately at a higher fee, and big orders eat up through the levels, causing slippage.
• A limit order resting in the order book is a maker: the price is certain and the fee lower, but it won't fill unless the price gets there.
• Obscure coins have thin order books, so slippage on a big market order can cost more than the fee.

Try it yourself

You can do these exercises in this lesson's interactive simulation:

1. Keep "Buy at market" at $10,000: what's the fee? Is the average price higher than the lowest ask of 60,010?
2. Switch to "Limit buy": what does the fee become? Where does your order sit in the book?
3. Go back to the market order, pick "Small coin: thin book" and raise the amount to $50,000: how many levels did it eat? What's the slippage?
4. Switch back to "Major coin: deep book" with the same $50,000: which costs more now, slippage or the fee?

Quiz and explanations

1. You market-buy $10,000 of crypto with a 0.1% taker fee. What's the fee?

Answer: $10.$10,000 × 0.1% = $10.

2. You place a limit buy below the current price, then the price keeps rising. What happens?

Answer: It never fills unless the price falls back to your order price.A limit order only fills at your price or better. If the price doesn't come back, it just keeps waiting.

3. What's most likely when you buy with a big market order on a very thin order book?

Answer: The average fill is well above the lowest ask (big slippage).Each level has very little on it, so a big order has to eat its way up, pushing the average price higher.

Terms in this lesson

• exchange (Exchange): A central marketplace that matches buy and sell orders, such as the NYSE or NASDAQ.
• limit order (Limit Order): An order that only fills at your price or better: the price is guaranteed, the fill isn't.
• liquidity (Liquidity): How many orders are waiting near a price; the deeper the book, the harder it is to move the price.
• maker (Maker): The side that posts a limit order and waits in the order book, adding liquidity, usually for a lower fee.
• market order (Market Order): An order that fills right away at whatever price is available: the fill is guaranteed, the price isn't.
• order book (Order Book): All the buy and sell orders that haven't filled yet, lined up by price.
• slippage (Slippage): The difference between the price you expected and your actual average fill, which happens when a large market order eats through several price levels.
• spread (Spread): The gap between the Ask and the Bid, a hidden cost on every trade.
• taker (Taker): The side that trades against an existing order in the book (such as with a market order), removing liquidity, usually for a higher fee.
• trading pair (Trading Pair): The exchange rate between two assets on an exchange; BTC/USDT means buying and selling Bitcoin priced in USDT.