Types of orders available when trading Cryptocurrencies

To put it simply, an order on a crypto exchange is a tool for buying or selling an asset at a trader’s preferred price. As a result, order types represent a different way of order to buy or sell a particular asset. They are recorded in special blocks – glasses, which are usually located on the main page of the platform.

To perform a specific order, a trader must specify several parameters, based on which the types of orders on the crypto exchange are determined:

• An asset that a trader has decided to buy or sell
• The amount of the asset being bought or sold
• Exchange currency for which the trader decided to exchange the asset
• Preferred price per unit of an asset
• Request type

The execution time of the order depends on the type of order, as well as the parameters specified by the particular trader. The order may take several minutes or several days. For example, a trader decides to sell one bitcoin for $50,000: if there is a buyer for this amount, then the deal will be concluded – however, for this, a potential seller and buyer must be present. It happens that the conditions set in the order do not correspond to market realities up to a certain point, and as a result, the execution of the transaction may be delayed. In this case, the order continues to be in the order book. If the order is not executed for a long time, the trader usually cancels it on his own and forms a new order with different parameters.

Everything is quite simple when a person constantly monitors cryptocurrency rates online and can make a deal quickly, but everything becomes more complicated when he pays attention to quotes only a few times a day and is not constantly at the terminal. In this case, he may miss a sharp jump in the course or a change in the market situation, for example, in connection with the sudden news. Suppose it could be the decision of a major world economic power, such as the United States or China, to fully legalize bitcoin, which will inevitably lead to a jump in the rate. It is in order to make a deal at the right time, there are different types of orders.

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Limit order

Many traders call this order on the crypto exchange basic, so most often novice investors start with it. The types of orders of this type involve not only specifying the amount of an asset to buy and sell, but also the desired price of buying or selling. Such an order on a crypto exchange is suitable for those who are afraid of missing out on a sharp jump in the cryptocurrency rate. For example, investors may expect an important news announcement that will inevitably lead to a change in the course, and then they send this type of order. In anticipation of an increase in the value of bitcoin, you can set a maximum price of $65,000 and sell the cryptocurrency at that price as soon as and if it reaches the desired level.

Such an order on a crypto exchange has a drawback. Firstly, if the number of those wishing to make a similar deal is quite large, then the market supply may not be enough to conclude a deal sent as part of a limit order. In this case, the order will remain unfulfilled. Secondly, the rate can change dramatically in a fairly short period of time – in this case, Bitcoin can rise in price to $75,000, and the $65,000 order will remain unfulfilled. Finally, thirdly, if a trader specifies a price that is too high, for example, $85,000 for bitcoin, then the transaction will not take place either, because the cryptocurrency simply will not reach this level.

Similar dangers await owners of limit orders when concluding transactions to purchase assets. For example, a trader expects a fall in the rate and sets a price of $40,000 for Bitcoin. If the market rate does not drop to this level or there are not enough people willing to sell their coins at this price, then the transaction will not take place again. Another danger is to set the limit above the market. For example, if bitcoin drops to $30,000 and you set a limit of $40,000, then the rate will continue to fall, but your deal will be closed. Therefore, in the case of a purchase, it is recommended to set the limits slightly above the market and in the case of a sale, below the market.

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Market order

The second most popular order on a crypto exchange is usually used by those who decide to sell an asset right now and at the current price. It is most often used by those who independently monitor course changes and react to them literally online. Such orders on the crypto exchange allow you to make a deal manually at the right time. They are used by those who decide to sell a certain asset and take profits or buy a certain asset here and now.

The order during the execution of a market order is usually executed within a few seconds, but no longer than a few minutes. In such an order, the seller or buyer simply indicates the amount of the asset being bought or sold, and the exchange rate is applied at that moment on the crypto exchange. In fact, these types of orders are used in any exchanger.

Such orders on a crypto exchange have one significant drawback – at the time of the conclusion of the transaction, the exchange rate can change dramatically, for example, due to an increase in those wishing to make a transaction with the same asset or a sharp jump, and then the transaction can be concluded at an unfavorable price.

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Stop Order

Such orders on the crypto exchange are most often used by experienced traders who can independently analyze and predict future course changes. For example, a trader expects that the bitcoin exchange rate will change by $5,000 in the near future, but at the same time, he is not ready to sell too cheap when concluding a deal and sell or buy cryptocurrency before reaching the desired indicator. In this case, he sets the maximum and minimum prices in order.

As a result, when the rate changes to the level he needs, he will be able to buy or sell cryptocurrency at the price he needs. Conventionally, this principle can be described as follows: we buy bitcoin at $40,000 and sell it at $65,000, but in reality, this corridor is, of course, much narrower.

The main risk of using such an order is the overconfidence of traders. You can remember how many people sold cryptocurrency at the beginning of December 2017 for $10,000, being sure that bitcoin would not grow any further, and as a result, they missed the profit when BTC was already worth $20,000.