As I dive back into the markets and going over my trading plan, I started doing some calculations of some win/loss rates as well as leverage using winrate.io and needed to add in maker and taker fees into the calculation. This got me thinking about the differences in fees and how that can really influence your trading profits. I was trading for a while before I even knew the difference. So, if you are new to trading, you may not know what this means and how it can effect your profit and loss numbers. So I am here today to help you out with the difference in maker and taker orders in trading.
What Are Maker Orders?
I am going to break this down into a mental visual for you. Imagine you're at a farmers' market. You have a basket of apples and you want to sell them for $2 each. You set up your stall and wait for someone to come by and agree to your price. In the trading world, this is similar to placing a maker order. When you place a maker order, you are adding liquidity to the market. This means you are setting a price that you are willing to sell at and waiting for someone to match it.
Maker orders can be either buy or sell orders. If you're placing a buy order, you're saying, "I'm willing to buy this asset, but only if the price drops to this level." If it's a sell order, you're saying, "I'll sell my asset, but only if I get this price for it." Maker orders sit on the order book until someone else decides to take you up on your offer. Maker orders are cheaper as far as exchange fees, but they don't have the instant gratification that a taker order gives. So let's get into that...
What Are Taker Orders?
Now, let's switch roles. You're at the same farmers' market, but this time you want to buy a basket of apples. You see a seller offering apples for $2 each, and you agree to buy them immediately. In the trading world, this is called a taker order. When you place a taker order, you are removing liquidity from the market because you are matching an existing order on the order book. Make sense? So instead of picking a certain price that you want to pay, you are just paying what the market is selling at in the moment.
Taker orders are all about speed and certainty. You're accepting the current market price and executing your trade right away. This is the approach I use when I am short term scalp trading. This is where I am in and out of the markets in the matter of minutes trying to catch quick pumps or dumps to get some quick profits. The problem with taker orders is that it usually comes with a higher fee compared to maker orders, so you will have to take this into account when calculating your profit and loss percentages.
When to Use Maker Orders
Maker orders are useful when you have time on your side and want to get a better price than the market is currently offering. Since you're placing your order at a specific price, you can potentially buy lower or sell higher than the current market price, but you just have to be patient and wait for the market to come to you. This strategy is beneficial in less volatile markets where prices aren't swinging wildly and you can afford to wait. It's also great for those longer swing trades.
For example, if you're looking to buy some crypto or shares of a company, you might set a maker order at a lower price than the current market price. If the price drops to your desired level, your order will be filled, and you'll get your shares at a discount. Similarly, if you're selling, you can set a higher price and wait for the market to come to you.
When to Use Taker Orders
Taker orders come into play when timing is crucial like in a short term scalp trade. If you need to execute a trade quickly due to a sudden market movement or news event, taker orders ensure your trade is completed immediately at the best available price. This is particularly important in fast-moving markets like cryptocurrencies where prices can change in an instant.
Suppose you're trading Bitcoin and a sudden price surge happens. To capitalize on this opportunity, you'd place a taker order to buy at the current market price before it climbs even higher. Conversely, if bad news hits and you need to sell quickly, a taker order will help you exit your position right away, potentially minimizing your losses. This strategy requires you to be paying attention to the markets in real-time. It's not the kind of play that you buy in and then just get up and go on with your life. You have to be in it and ready to get in and out of the markets at the drop of a hat.
Conclusion
Understanding the difference between maker and taker orders is essential for any trader. Maker orders help you set your desired price and wait for the market to meet it, plus it comes with lower fees in most cases. Taker orders, on the other hand, let you execute trades immediately at the current market price, which can be crucial in volatile conditions, but can be a bit more expensive to execute thus cutting into your profits or making your losses a bit bigger.
By knowing the difference in maker and taker orders in trading, you can really optimize your strategy, manage your risks, and make the most of your trading opportunities. So, next time you're setting up your trades, think about whether you want to be a maker or a taker, and choose the option that best suits your needs for that trade! So get out there and trade logically!
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Many of my cryptocurrency related articles as well as trading articles can also be found on my crypto research site, Coin Logic.
I also post trading chart ideas on my TradingView Profile.
Disclaimer:
The information in this trade journal is for educational purposes only and should not be considered financial advice. Please consult with a qualified financial advisor before making any investment decisions.
