Market Orders
Understanding the different types of orders is essential for effective trading on Perplex. This guide explains the two primary order types you can place on our platform: Market Orders and Limit Orders.
Immediate Execution
A market order is an instruction to buy or sell an asset immediately at the best available current market price. This type of order does not specify a price; instead, it focuses on rapid execution using existing market liquidity.
How Market Orders Work on Perplex
Perplex operates on an Order Book Model, where all buy and sell offers from users are collected in an order book. The DEX matches buy and sell orders based on their prices. The current market price of an asset is determined by the highest price a buyer is willing to pay and the lowest price a seller is willing to accept.
Slippage
Slippage occurs when a trade is executed at a different price than expected, often due to market volatility or insufficient liquidity.
Example:
- You place a large market buy order for an asset priced at $100.
- The market lacks sufficient sell orders at $100 to fill your entire order.
- Your order starts filling at $100 but continues to higher-priced sell orders above $100 until fully filled.
- The average price you pay ends up being higher than $100 due to slippage.
When you place a market order, the exchange matches your order with the best available limit orders in the order book. If there's not enough volume at your desired price, the system fills your order at the next best prices available, potentially resulting in a higher average price.
Pros of Market Orders
- Speed of Execution: Ideal for traders who prioritize immediate execution over securing a specific price.
- Simplicity: Easy to place and quickly filled.
- Effective in Volatile Markets: Beneficial when swift entry or exit from a position is more important than price precision.
Limit Orders
Price Specification
A limit order allows you to specify the exact price at which you wish to buy or sell an asset. The order will only execute when the market price meets or is better than your specified limit price.
- Buy Limit Order: Executes at your limit price or lower.
- Sell Limit Order: Executes at your limit price or higher.
Execution Conditions
Limit orders are not guaranteed immediate execution. They remain open in the order book until the market price reaches your specified price. This gives you control over the trade price but may result in the order not being filled if the market doesn't reach your limit.
"Post Only" Option
When placing a limit order, you can check the “Post Only” box and your order will not be executed immediately in the market. It will exist as a maker order on the order book, but never match with orders that are already on the book. Maker orders add liquidity to the market.
You will only be charged a maker fee, not a taker fee, when your placed order is executed.
If you place a limit order with "Post Only" at a price that would immediately match an existing order (such as buying above the current market price), the system will automatically cancel your order upon placement.
Pros of Limit Orders
Limit orders are particularly useful for traders who are not in a rush to execute a trade and prefer to wait for a more favorable price. This method is advantageous in managing risk and improving potential returns, especially in less volatile or predictable market conditions.
When trades occur between the same address - meaning that you match your own order - the resting order is canceled instead of being filled. No fees are deducted, and the cancellation does not appear in the trade feed.
Additional Considerations
"Reduce-Only" Option
A Reduce-Only Order is an order type designed to decrease or close your existing positions without opening new ones or increasing your exposure. This means the order will only execute if it results in a reduction of your current position size.
How Reduce-Only Orders Work on Perplex?
- Position Management: When you place a reduce-only order, Perplex ensures that the execution of this order will not increase your position size. If the order would result in a larger position or reverse your position (e.g., from long to short), it will be adjusted or canceled accordingly.
- Avoiding Overexposure: This feature is particularly useful when you have multiple orders and want to ensure that specific orders only serve to decrease your current positions, preventing accidental overexposure due to unintended order execution.
Self-Trading Prevention
- Same Address Trades: If an order you place would result in a trade between your own orders (i.e., matching orders from the same account), the resting order in the order book will be canceled rather than filled.
- No Fees Charged: No fees are deducted in such cases.
