Foundations · Lesson 10 · Beginner
Order types and maker/taker
You know market, limit and stop and understand why maker limit orders save costs.
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The three order types
Market guarantees execution, not the price. Limit guarantees the price, not execution. Stop only becomes active on a trigger and is mandatory with leverage.
Maker vs taker
A maker limit order sits in the order book and provides liquidity, the fee is low. A taker executes immediately against the book and pays more.
Compare the same position as a taker market order and as a maker limit order.
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Test yourself
Which order saves fees and slippage on entry?
- Maker limit
- Taker market
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The key points at a glance
- Market guarantees execution, limit guarantees the price, stop is mandatory with leverage.
- As a maker you pay a lower fee and no slippage.
Deep dive
Why trading is a negative-sum game
Elder calls trading a negative-sum game: commissions, spread, slippage and funding tilt the field against everyone. In his example one trader wins 920, the other loses 1080, and the difference of 160 goes to the industry.
- Around 50 percent of the gross profit disappears into friction
- UCLA study: around 95 percent of hundreds of thousands of day traders lost
- Barber and Odean: the most active traders have the worst results
- More trades mean more costs, not more edge
Using market, limit and stop orders correctly
A purely mental stop is not an order in the moment of pain, it is a statement of intent that you almost always soften under stress.
- Market order: guarantees execution, not the price, creates slippage
- Limit order: guarantees the price, not the execution
- Stop order: only becomes active on the trigger, mandatory with leverage
- Place the stop as a real order right at entry, not mentally
How much a maker limit order saves
A maker rests in the order book, provides liquidity and pays the lower fee with no slippage. A taker executes immediately against the book and pays the higher fee plus slippage. On many exchanges the maker fee is less than half as high, sometimes even slightly negative.
Sources: Elder, Goodman
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