Types Of Crypto Orders You Should Be Aware Of
Trading cryptocurrencies is a skill. The typical error that most traders make is that they are trapped in traditional trading patterns, even if the Cryptocurrency Exchange offers many trading alternatives to create a rich user experience.
If you are a Crypto Trader trying to improve your trading skills, this blog is for you!
Before we go into the order kinds, let's go through the most fundamental ideas of the Crypto Market: Market Makers and Market Takers.
Market Makers and Takers
Do you own cryptocurrency? Then, depending on how you purchase or sell your cryptocurrencies, you are either a market maker or a market taker.
To put it simply,
A market maker creates liquidity. At the same time, a market taker uses liquidity to acquire and sell assets instantly.
If a trader wishes to buy/sell an asset at a defined price in the future and places a new order in an order book, he is the market maker.
As an example,
You intend to sell 3 BTC for $20,000; here, you specify the exact price for the order, creating liquidity in the market.
This order will be closed when the buy order matches it.
The majority of market participants are large merchants or institutions.
Market Takers remove liquidity and orders, thereby closing deals in the order book.
Market takers are people who wish to purchase or sell assets promptly in the market value without any time delay.
What order types do crypto exchanges offer?
In general, order types are instructions for a cryptocurrency exchange to undertake a specific buy/sell operation.
It is roughly classified as follows:
- Limit Order
- Market Order
- Stop-Loss Order
- Stop-Limit Order
- One Cancels the Order (OCO)
1. Limit and market orders
The market maker executes market orders, which are instructions to purchase or sell assets promptly at market value.
Limit orders direct the exchange to wait for a certain amount of time until the stated value is reached.
A market order permanently closes a limit order.
As an example,
Harry wants to sell 1 BTC for $21,000 and has set a limit order; however, Sam is glad to acquire 1 BTC for $21,000 at the market price and has placed a Market order.
When a limit order in the order book matches a market order, the order is closed.
2. Stop-Loss Order
Stop - Loss orders are entirely intended to shield traders from severe losses.
It is a limit order in which an item's price is predefined but not added to the order book.
When the specified price value is reached, the Exchange platform considers it a market order and converts it to one.
3. Stop-Limit Order
Stop - Limit Orders are similar to stop-loss orders, but you may specify the stop and limit prices.
It allows you to create a limit between the numbers in the range.
The stop order, in this case, is the price that triggers the limit order, whereas the limit price is the standard price at which the order gets executed. Once the stop price is reached, your limit order will be placed.
If you want to buy crypto at $100 with a stop-limit order, and you keep your stop price at $99, and limit price at $96, then when the price will hit $98, a limit order at the price of $96 will be placed. And once the price reaches $96, the order will be completed.
4. One Cancels the Order (OCO)
As the name suggests, this technology allows you to combine two orders and execute the one most advantageous to the market.
For example, if the price of BTC is 21K USD, you can put both buy and sell orders; if you want to buy BTC at $22k, then you can place a buy order by entering $22k in the price field. Similarly, if you sell at $18K, you can put a sell order at $18K in the stop field.
Now, if the buy orders are triggered, the sell order will be canceled, and if the sell order is triggered, the buy order will be canceled.
There are many more distinct order types available on cryptocurrency exchanges. Traders must think outside the box and employ some order to survive in the volatile cryptocurrency market.
When we go deep into these topics, we will discover that cryptocurrency trading is not a danger, but it does require extensive research.
The prior lists are helpful for traders and young aspiring entrepreneurs looking to get started.