Market orders vs Limit orders on Etoro

Opening a trade on eToro is extremely easy: choose an asset you would like to buy or sell and press the ‘Trade’ button, select the quantity and open a position within seconds. But what if you don’t want to purchase the asset just yet? What if you believe its price will go down in the future to a certain level so you can get a better deal buying it later? Thankfully, eToro allows you to place orders for that purpose. What are the different types of orders on eToro and how they are different from immediate trades? Below you can find a quick guide that answers these questions.

(NOTE: Before we continue, we have to give a disclaimer that the trading products offered by the companies listed on this website carry a high level of risk and can result in the loss of all your funds. CFDs are complicated instruments that are never guaranteed to provide you supplemental earnings.  In fact, Around 68% of all retail investors experienced a loss while trading CFDs. Make sure to keep this in mind before attempting to use the eToro platform yourself. All the information found on this website is not official trading advice and all practices shown are referenced for the use of the Demo account only.)

Difference between a Market and a Limit order?

The process of going long or buying an asset on eToro is very easy: go to the asset you have chosen, hit the ‘Trade’ button with a window containing the current price opening up, choose the amount and press ‘Trade’. You can see that the prices for Buy and for Sell are different and this difference represents the spread fee charged by the broker. When you are opening a position that way in an open market you are placing a trade at that exact same moment. This is called a Market order. eToro also gives you another option, which is placing an ‘Order’. This is what is referred to as the Limit Order. Setting an order means you are setting a command to eToro to execute a trade at your chosen price, so it is not necessarily the current price of an asset. You can access it by clicking on ‘Trade’ on the window of your asset position.

What is an order?

There are two types of orders that exist, a market and a limit order. Market orders are placed when you want to trade an asset but the market is closed, so you can still open a trade but it will only be executed at the first available price once the market re-opens, like shown on the image below.

Limit orders are another type of order which will only be executed once the price of an asset reaches the desired price or the ‘Rate’ you have set for that trade. So this order will be pending until the asset achieves the target rate.

When markets are open, the trading window for you opening an immediate trade or placing a limit order for a certain rate is the same for all types of assets.

Once the markets are open the market orders or in simple terms, trades, are executed almost instantaneously as soon as you place them. Once you hit the trade button in an open market the long or short trades are filled at that moment, like on the image below.  

You have to be careful with limit orders on eToro however. It may be the case that the rate you have requested in the order may not be available during periods of high market volatilities and instead it will be executed within a certain range of the rate you targeted. The actual range allowed for these conditions depends on the type of instrument you are trading, however this market range makes sure that the executed rate is suitable and no trade is open when the price of the asset has moved sharply from its target level.

Note the difference between orders for stocks and all other types of assets on eToro when you are setting up an order when markets are closed. To access market and limit orders for stocks you have to access the ‘RATE’ button with reversal arrows for stocks; for other assets like cryptocurrencies shown on the example below, you have to swap between the ‘Trade’ and ‘Order’ drop-down menu of the ‘Trade’ button. ‘Trades’ here are essentially market orders and limit orders are referred to as simply ‘Orders’.

Another type of ‘orders’ you might have come across on the platform is the stop-loss or take profit levels you set for your trades. These types of orders are actually quite different from the order trades considered in this article as they are basically available for investors for their own security, allowing you to get out of trades at certain price levels you set. The common feature here is that all of these orders are executed once a certain price condition is satisfied.

You can find all of such limit or pending orders you placed in your portfolio section, as shown below.

These orders are going to stay open until they are executed. What happens if the price you’ve set for your order is never achieved? Well, then your order is likewise never going to be executed. You can always cancel your order any time.

Why place an order?

Sometimes traders may perform fundamental analysis on a company and make a conclusion that the company is currently over or undervalued, so the market is not pricing it correctly. Since they expect the price to move in a certain direction predicted by their analysis, they set a price limit for their trade accordingly. For example, speaking from a perspective of a long trade, let’s say you are expecting the asset is likely to go down in price so the current price it too high for you to pay. You would then set a limit order with a price lower than current level as you are expecting it to go down. Once that level is reached by the asset, the order will be executed.

The same can be relevant for technical analysis. Many times traders try to determine best entry points for their trades and use order trades in combination with technical analysis to trade in the short-term. As you can see from price charts, the prices are constantly moving up and down and traders try to make a profit off these movements. For instance, let’s you’ve identified a certain support level below which you believe asset’s price will not go down as well as resistance level above which you believe the price would not go. You may then choose to set up an order at the identified support level, buying it low before the price goes back up. However there is always a risk that a trend of a rising price will establish and your order will not ever be executed. Or on the other hand, you may anticipate that the price is likely to break through the resistance level and continue in a strong uptrend, so you set up an order at the resistance instead; the danger here is the opposite, the price might never break above the resistance and go down instead, so you would end up buying at a high price. It therefore may be a good idea to consider other technical indicators available on eToro before making a final decision.

Market order slippage

There is one last caution you might consider is related to market orders. Once you place a trade, you are expecting to purchase that asset at the asking price or sell that asset at bid. In case of high market volatility however, an unfortunate situation referred to as ‘slippage’ can occur, where the price of the asset you are trading changes between the moment you placed a buy or sell order and the time it is actually executed. In fact, it can open when you both open or close a position and can work both to your loss and to your favor. For example, let’s say you are opening a buy position in a currency pair, for example, EUR/USD at 1.3822 but when the trade was actually filled the price went down to 1.3820, so a slippage of 2 pips. Depending on the volume, leverage and the instrument’s spread that could even result in a loss or a profit on your trade.

Hopefully this article made the concepts of orders, both market and limit, more clear to you and you are more familiar with some of the risks associated with them. Remember that trading always involves capital loss risks and enjoy the eToro platform and best of luck!

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