In crypto trading, there are two main types of orders on exchanges: ‘Maker‘ and ‘Taker‘. In this guide, I’m going to be talking about ‘Maker’ orders and showing you exactly what they are, how they work and the pros & cons of using them when trading cryptocurrency.
What is a Maker Order? (Definition)
A Maker order is a type of order in cryptocurrency trading whereby the trader sets a limit order (at a set price) which is submitted to the order book and has to be filled by a taker order (another trader). It is called a maker order as when you put the order in, you are ‘making’ the market by adding liquidity to the order book.
If you didn’t quite understand that, I’m going to put it in more simple terms – it can be complex at first. So, for example, it is when you tell the cryptocurrency exchange that you are willing to buy 1 Bitcoin at a price of $7,000 and the last traded price was $7050. Once you’ve submitted your order at $7K, you’ll have to wait for someone else to sell their Bitcoin to you at $7K, in order for you to cash out. This is a maker order when you add liquidity (available orders) to the order book.
But wait, there’s more you need to know. USually on crypto exchanges, they don’t call it a ‘Maker’ order, it’s more commonly referred to as a limit order, which basically means that you say you are willing to pay a certain amount for x amount of a coin and no high/lower (hence it is called ‘Limit’).
Don’t get confused though, you can also have different types of limit orders like ‘Stop-Limit’, but you don’t need to worry about that right now. Just remember that ‘Maker‘ = ‘Limit‘.
Why use Maker Orders?
Now you probably want to know why you should use a maker order right, it sounds like a lot of effort and isn’t instant. Well, using maker orders usually costs you less in trading fees on most exchanges (usually 50% less) and it also allows you to set orders for the future at a price you want to open a trade at rather than at market (taker order). For example, let’s say that you want to buy 1 Bitcoin but you think the price is going to go down over the next 24 hours for whatever reason. The current price is at $7500 but you think it will go to $7000 overnight, so you don’t want to buy it just yet. In this situation, you can use a maker (limit) order to say that you will buy 1 Bitcoin at $7000. You wake up in the morning, Bitcoin did fall to $7000 (nice one, you were right!) and so your order was filled and you paid $7000 for 1 Bitcoin rather than $7500 the previous day. So using this example, you can see that maker orders give you an opportunity to predict the market and get better rates on cryptocurrency investment assets if you have the patience.
This brings me nicely onto the next question.
Are there any downsides to using Maker Orders?
Like anything on this world, there are downsides to using maker orders. You usually have to wait longer for your order to fill (execute) – sometimes you might wait even several days depending on how the market acts and how far away from the market price your maker order is. But that’s about it when it comes to downsides, generally, maker orders are the preferred method of trading for most crypto traders since you can get a better price and pay fewer fees, and thus increase your profits.
So, to re-cap; a ‘Maker‘ order is a type of order on a cryptocurrency exchange which adds liquidity to the order books.