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Market orders often give a false impression of safety, and then can come back to bite you at the worst possible moment - when the market is very volatile. For

Market orders often give a false impression of safety, and then can come back to bite you at the worst possible moment - when the market is very volatile. For example, say you have some commodity and you set up a stop order at $100. Often people assume this means that you're guaranteed to get at least $100 for your commodity, and so your losses are limited. But that's not what it means! What it means is, if the price goes below $100, your broker will sell for whatever they can get. Those aren't the same thing, and that's what makes market orders so dangerous. It's insidious because they are the same thing in normal, liquid markets, and they stop being the same thing when things get choppy. For a relatively recent example, a couple years ago Switzerland suddenly dropped the Franc's peg to the Euro, which momentarily spiked its value by 30% and made the market totally illiquid while people tried to figure out what the correct price was post-peg. A bunch of forex traders got wiped out as a result, because they had hugely levered positions on the Euro, and assumed that their stop orders would save them if something went wrong. But when the Franc spiked to 0.80 EUR, they had to sell at that price (at a huge loss) even though it settled back to 1 EUR moments later. If not for those market orders, they would've been fine.

lend000 10y ago
Slippage could be considered a disclaimer about market orders that some people don't realize, but keep in mind that market orders are essential to many exchanges (EDIT: based on the 'maker/taker' model, like GDAX). The market doesn't move/work without market orders, unless you have a limit order matching policy or something.
- dragonwriter 10y ago
  Huh? Markets can move/work just fine with only limit orders at the lowest levels, and "a limit order matching policy" is a feature of all exchanges. Actually, markets don't work without limit orders and a limit order matching policy; market orders don't have anything to set a price for them without limit orders.
  - lend000 10y ago
    > "a limit order matching policy" is a feature of all exchanges Not maker/taker exchanges, including GDAX (Coinbase's exchange)... Check it out. > Actually, markets don't work without limit orders and a limit order matching policy; market orders don't have anything to set a price for them without limit orders. Also true, and not at odds with my point. They are symbiotic in a maker/taker model. Not saying anything about whether it's a good model, but here it is for everyone's edification: http://www.marketswiki.com/wiki/Maker-taker http://www.marketswiki.com/wiki/Maker-taker
    - dragonwriter 10y ago
      > Not maker/taker exchanges, including GDAX (Coinbase's exchange)... Check it out. GDAX has immediate-or-cancel limit orders, and it's market orders are only immediate-or-cancel, so it has to match incoming limit orders against the limit order book with a limit order matching policy. Which, unsurprisingly, it has. [0] Maker/Taker just mean fees go from aggressor orders to the orders on the book they are matched with; to enable market makers to optimize their operations in this environment, for instance, GDAX has a Post-only limit order type that is basically an inverted Fill-or-Kill limit order where if any part of the order would match an order on the book (which requires limit order matching!), the entire order is cancelled. You could use maker/taker pricing on an exchange where limit orders were effectively all the equivalent of GDAX's Post-only (so, makers) and takers had to be market orders, but, that'd be a pretty horrid market for takers, and outside of a monopoly with a strong moat on the commodity pair(s) being traded, I'd expect actual trade to migrate to more sanely-structured venues. [0] the policy is summarized: https://support.gdax.com/customer/en/portal/articles/2429575-order-matching-and-price-determination https://support.gdax.com/customer/en/portal/articles/2429575... (it seems to be fairly standard price/time priority with price set by the order on the book.)
      - lend000 10y ago
        Didn't realize GDAX supported taker limit orders by de-selecting "Post Only" -- definitely a nice feature along the lines you're describing, adding a bit of slippage safety: https://support.gdax.com/customer/en/portal/articles/2426596-entering-market-limit-and-stop-orders https://support.gdax.com/customer/en/portal/articles/2426596...
- deleted 10y ago
  [deleted]
blibble 10y ago
on most equity exchanges a market order that would result in an execution 30% below the open/last price would be blocked and trigger an auction "circuit breakers"

lend000 10y ago

Slippage could be considered a disclaimer about market orders that some people don't realize, but keep in mind that market orders are essential to many exchanges (EDIT: based on the 'maker/taker' model, like GDAX). The market doesn't move/work without market orders, unless you have a limit order matching policy or something.

dragonwriter 10y ago
Huh? Markets can move/work just fine with only limit orders at the lowest levels, and "a limit order matching policy" is a feature of all exchanges. Actually, markets don't work without limit orders and a limit order matching policy; market orders don't have anything to set a price for them without limit orders.
- lend000 10y ago
  > "a limit order matching policy" is a feature of all exchanges Not maker/taker exchanges, including GDAX (Coinbase's exchange)... Check it out. > Actually, markets don't work without limit orders and a limit order matching policy; market orders don't have anything to set a price for them without limit orders. Also true, and not at odds with my point. They are symbiotic in a maker/taker model. Not saying anything about whether it's a good model, but here it is for everyone's edification: http://www.marketswiki.com/wiki/Maker-taker http://www.marketswiki.com/wiki/Maker-taker
  - dragonwriter 10y ago
    > Not maker/taker exchanges, including GDAX (Coinbase's exchange)... Check it out. GDAX has immediate-or-cancel limit orders, and it's market orders are only immediate-or-cancel, so it has to match incoming limit orders against the limit order book with a limit order matching policy. Which, unsurprisingly, it has. [0] Maker/Taker just mean fees go from aggressor orders to the orders on the book they are matched with; to enable market makers to optimize their operations in this environment, for instance, GDAX has a Post-only limit order type that is basically an inverted Fill-or-Kill limit order where if any part of the order would match an order on the book (which requires limit order matching!), the entire order is cancelled. You could use maker/taker pricing on an exchange where limit orders were effectively all the equivalent of GDAX's Post-only (so, makers) and takers had to be market orders, but, that'd be a pretty horrid market for takers, and outside of a monopoly with a strong moat on the commodity pair(s) being traded, I'd expect actual trade to migrate to more sanely-structured venues. [0] the policy is summarized: https://support.gdax.com/customer/en/portal/articles/2429575-order-matching-and-price-determination https://support.gdax.com/customer/en/portal/articles/2429575... (it seems to be fairly standard price/time priority with price set by the order on the book.)
    - lend000 10y ago
      Didn't realize GDAX supported taker limit orders by de-selecting "Post Only" -- definitely a nice feature along the lines you're describing, adding a bit of slippage safety: https://support.gdax.com/customer/en/portal/articles/2426596-entering-market-limit-and-stop-orders https://support.gdax.com/customer/en/portal/articles/2426596...
deleted 10y ago
[deleted]

blibble 10y ago

on most equity exchanges a market order that would result in an execution 30% below the open/last price would be blocked and trigger an auction "circuit breakers"