Difference between market order and removing liquidity?

Discussion in 'Trading' started by tstrade, Jan 26, 2007.

  1. tstrade


    So what is the difference between a market order and removing liquidity? Also, between a limit order and adding liquidity?

    I'm not quite sure. Any help would be appreciated.

  2. tstrade


  3. This is my understanding, however it might be incorrect, I trade options mostly.

    Adding liquidity is when you use a limit order that doesn't execute an order. I.e. bid ask at 57/59 and you but in a limit order to buy or sell at 58. Your order doesn't hit another immediately, so it sits until someone takes it.

    A market order will always remove liquidity because you are taking the closest bid (if selling) or ask (if buying), therefore removing liquidity.
  4. adding liquidity means you join the bid or offer.....you do not get the shares until someone else hits your bid or offer and removes the liquidity you added to the market.

    a market order keeps taking shares until the order is filled...a limit order stops after it has cleaned out all the shares to the price or "limit" that you placed on the order even if your entire order has not been filled.
  5. tstrade