Trading Order Types

If you are new to the cryptocurrency trading and wondering what are trading order types, this article will list some of the most common order types when trading cryptocurrencies and explain their basic functions. Do note that other types exist but are not very popular not used in crypto.

In general, all trading orders can be divided into two types according to their purposes: orders to enter and orders to exit. They can also be divided by their functions: to sell or to buy. If you choose to enter the market with a sell order, then you will exit the market with a buy order and vice versa.

Take BTC as an example. If you expect the BTC price to go down in the future, you will use a sell order to enter the market, and exit with a buy order. Your profit comes from the price gap. As you can infer, you can enter the market with a buy order if you believe the BTC price will go up in the future and exit with a sell order.

But how can you make sure the order you place can serve its intended purpose and not cost you more than it gives you? Let’s now take a look at some trading order types and what they can do.

Market Orders

Market orders are the easiest to understand. It means that you immediately buy or sell at the current BTC price, whatever that price may be. Using market orders, you are allowed to set the number of coins, say BTC, that you want but not the price. Once you have placed a market order, it will check the quantity available in the order book and take it at the best price available. The immediatilily and certainty of this order can make it very attractive but it also represents a risk as large the order book may have very few orders; making traders pay a price much higher than they expected to.

As such, a market order should be used when traders are confident in the market depth and ready to take the risk in exchange for their order being executed immediately and certainly.

Limit Orders

As you can tell by its name when using limit orders you are allowed to put some limits or restrictions on the price. Basically, limit orders allow you to buy or sell an amount of BTC, or other cryptocurrencies, at a specific price or better. But this creates a variable as to when your order might, or not, be fulfilled. Whether and when your order can be completed or not are dependent on how the market is moving, more specifically, how the order book is changing or how much activity the market sees.

When you place a limit order to buy 2 BTC at $3500, you will get 2 BTC at $3500 or maybe even $3490, but only once a matching order has been found. Limit orders are used when you want to obtain a suitable price and are willing to risk not being filled at all. In the example we gave above, if no one is willing to sell BTC at $3500 or lower, your order might never be filled.

Stop Orders/Conditional Orders

The third type of order we are going to talk about is called Stop Orders/Conditional Orders. To help you better understand this order type, you can imagine that there is a trigger in this type of order. You choose a price higher when selling, or lower when buying, as the trigger for a market or limit order. For example, you place a market stop order at $3500 to sell 2 BTC. Once the current market price reached $3500 or above, your order is triggered and will be processed as a normal market order.

It is indeed a smart way to manage losses and ensure you buy in at a price that’s more profitable to you. But be careful as with the volatility of all the cryptocurrencies because of the market depth on exchanges is not as deep as that of traditional currencies. On an exchange, it would be possible to have the price quickly fall from $3,500 to $2,000 and as $3,500 was your trigger you might end up selling at $2,000 instead. We’re not suggesting that you should not place Stop Orders/Conditional Orders, but merely advising to remain cautious no matter the kind of order type used.

This concludes today’s article on the three main trading order types, their rules and how to use them. We hope you learned a lot, enjoyed the read, and stay tuned for more great content.