Limit Orders, Market Orders, and the Real Trade-Off
Crossing the spread costs money you can measure. Waiting costs money you cannot. A practical guide to choosing, with the missed-fill cost included.
Cross the spread and you pay a known cost. Rest an order and you pay an unknown one. Choosing well means taking the second cost seriously, which most people do not.
The measurable side
Crossing costs you half the spread against the mid, or the full spread on a round trip. On a market quoted 60/64 that is four cents round trip. This is easy to compute and easy to fixate on. What a spread costs you.
The invisible side
A resting order at 61 in a market quoted 60/64 saves you three cents when filled. When the market moves to 70 without trading at 61, you saved three cents on a trade you did not make, and forwent everything the position would have earned.
The expected cost of patience is the probability of not being filled multiplied by the value of the missed position. Nobody computes this, and it is frequently larger than the spread.
The asymmetry that matters
Resting orders get filled preferentially when the market is coming toward you, which is to say when you are about to be wrong. They fail to fill when the market is running away, which is when you were right.
This is adverse selection from the other side of the table. It does not make limit orders a bad idea; it means their realised cost is worse than the naive calculation suggests. What market makers do.
A decision rule
Wide spread, quiet market, no catalyst: rest inside the spread. The cost of waiting is low and the saving is large. This is most of the time on most markets.
Tight spread: cross. Saving one cent is not worth the risk of missing.
Catalyst imminent: decide whether you want the position and act. Resting orders around a scheduled release are an invitation to be filled by someone who saw the number first. Macro release markets.
Urgent view: cross. If your edge is that you know something now, patience converts it into no edge at all.
Large size: work it. Neither pure approach fits; split into pieces, rest some, cross some. Depth and slippage.
Practical details
Improve the quote rather than joining it. Resting at 61 in a 60/64 market gets you priority over everyone at 60 and costs one cent. Joining the queue at 60 may never fill.
Check both sides of both books. Buying No and selling Yes are the same position. Sometimes one side is better. Yes and No shares.
Cancel what you no longer want. A forgotten resting order is a standing offer at a price you formed hours ago. These are how people acquire positions they have stopped believing in.
Watch for maker incentives. Where resting is cheaper than crossing in fee terms, that tips the calculation further toward patience.
The honest summary
For most people on most markets the right default is a limit order resting inside the spread, because most markets are quiet and the spread is the dominant cost.
The exception is exactly when it matters most: if your view is time-sensitive, pay the spread. An edge that expires is worth less than the cents you saved not taking it.
Next
Reading an order book properly.
Educational content only. Nothing here is financial advice, a solicitation, or an offer to trade. Prediction markets can move against you and a position can lose its entire value. Where this guide describes a difference between venues it describes a theoretical cross-market edge in observed prices, which is not a profit: fees, spreads, capital lockup, transfer time and differing settlement rules all come out of it first.
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