Let us do a bit of theoretical trading since I haven't found a good market to get into over the past three days as it looks like the market is in a sideways movement. Today, I will be explaining the two types of market participant that there are when trading. Financial Trading involves buying and selling of financial instruments in the aspect of crypto, it is cryptocurrency pairs, with currency market, it is forex, the same applies to indexes, stocks, and so on.
In other to understand what differentiates the two participants, I would like to explain Market Orders and Limit orders.
Limit Order
Limit order is used to buy or sell commodity/assets by a trader by setting their own price instead of using the trader trading with the price of the market. It allows for traders to pick either a higher or lower price from the market price.
Market Order
Market Order is a form of order that requires the trader to enter their trade based on the current price of the market. The trader do not have to set their own price.
There are the Passive and the Active market participants when it comes to trading the market.
Passive Participant
These traders are traders that enter a trade using the limit order, these participant do not chase the market and are not so desperate to get into one market but rather, they enter a trade at their price. Do not forget that when I mean participant, I do not mean individuals alone, I mean large hedge funds, banks, companies and so more interested in the market but provided they do not pick the last price but rather select their price and set the orders at that price. Passive participants can set markets either on the long order book or on the short order book.
Active participant
Contrary to the previously explained, this participant does not care about the current price of the market, they are known as takers, and they use the market order to buy or sell into their position. Active participant just want to be a part of the market, they do not want to be in the market. When a trade is on a trend that need to entered immediately, a market order can be used, thereby not allowing the trader to miss out.