Order Types in Crypto Trading: A Beginner’s Guide


In recent years, cryptocurrency trading has been one of the most popular ventures, especially for the young generation. However, there is still a gap that needs to be filled despite increased participation. One of them is to help these traders, most importantly, beginners to understand the concept of orders, be it on exchanges, software or broker platforms.

Reputable cryptocurrency websites Always warn beginners to be cautious when jumping into trading without doing due diligence. Therefore, in this article, we will do our best to help you understand order types in crypto trading and everything else related to it. Keep reading! But first, let’s go back down memory lane a bit by looking at the history of Bitcoin.

You will recall that in 2009 there were not many options for trading cryptocurrencies. Most of the exchanges occurred with the peer-to-peer offer in several countries. However, that process has been cobbled together today and you may not necessarily need to engage in peer-to-peer prior to trading cryptocurrency. Of course, there are risks associated with the process, but what would traders do when less advanced technology was available?

Many years later, there are now trusted exchanges that offer various methods as long as clients comply with their Know Your Customer (KYC) process and Anti-Money Laundering (AML) regulations. This advent of crypto exchanges is what has led to the realization that there is such a thing as books and order types.

However, it is important to note that order types in crypto are a bit different from those in forex and other financial markets. For cryptocurrency trading, order types are developed specifically to help traders buy or sell an asset at the time and price that aligns with their objectives with the smallest losses.

Also, these types of orders are not made for crypto whales only but also for retail investors. Therefore, those with moderate trading capital in the space also have unlimited access to progress with their purchases and sales. Interestingly, using the order types method means you don’t have to worry about central authorities or third parties. Thus, making it easy to trade these days.

So, the days of maximum stress trading are gone, as it does not require much time on the charts or screens to execute a trade with the order model. But before we dive into the types of orders we have in the cryptocurrency market, help us understand what order books are in the next segment.

Order Book: What does it mean?

In simple terms, a order-book it is simply defined as a list of open buy and sell orders for a particular trading pair. Advanced traders might call it long and short. For context, long is buy, and short is sell. You can also describe an order book as a market open to anyone who is ready to bid on an asset, either short or long. All of this is done in an attempt to make a profit.

Also, the order book is always open until a trader decides they want to make a profit, book their loss, or cancel a trade. So on the order books you can have trading pairs like Bitcoin against Ethereum, Solana against Tether and the like. Next, let’s get into the main thing by looking at the order types available in cryptocurrency trading.

Types of orders in cryptocurrency trading

There are several types of orders in cryptocurrency trading. However, most of the use of these order types depends on the objective of the trader. So, are you interested in “watching” a rise in price, or do you think the price of an asset would go down? All of this would determine the type of order you would be interested in. The order can exist in different types of markets. If you trade in the spot market, there are orders you can use. On the other hand, if you take more risks with the futures market, there are also specific orders for you. Let’s get into it.

market orders

By definition, a market order it is simply a directive from a trader to buy or sell a crypto asset at the most profitable price available on the crypto market. Unlike other orders we might touch, market orders are executed immediately after a trader places one. You can also refer to this as the simplest type of cryptocurrency trade or order type. So what are the advantages and disadvantages associated with market orders?

advantage

One of the advantages of using market orders is that traders do not need to worry about hitting specific targets. They just allow the market to do its job. This is not the case with other types of orders. For others, there is more speculation and prediction that you can avoid entirely by focusing on the market of others. Furthermore, the risk associated with market orders is extremely minimal compared to other types of orders.

Another advantage is that market orders are executed instantly. Traders do not need to worry about waiting or being immediately liquidated as soon as they place their buy or sell trade. Next, let’s look at market order drawdowns.

cons

A significant reduction in market orders is that multiple orders can be executed at lower than expected prices. This is because the orders are instant. So, imagine that you place an order when Bitcoin was at $34,000. Then, almost immediately after placing the order, the price drops to $32,500. The market would not fill your order at $34,000 but at $32,500. So in that case, you’ve lost your target input. Apart from this, which is commonly known as slippage, there are hardly any other disadvantages to market orders. With that said, let’s move on to other types of orders in the crypto market.

order limit

The second type of order that we will cover is the limit order. For context, a trader places a limit order in crypto to buy or sell an asset at its own specified price. So in this case, it doesn’t matter if the market price trades higher or lower than the trader’s desired price. The trade will only be executed when the price of the asset reaches the traders entry point. This type of order is suitable for patient traders. Sometimes it can take a few minutes or hours to complete the order. In other cases, it may take a few days before they are executed. Now, let’s look at the pros and cons of this type of order.

advantage

Limit orders differ from the market orders described above in that they offer more freedom. Therefore, traders who use limit orders worry less about the market price, since they have more control. In summary, one advantage you can point to is that limit orders allow traders to set their minimum or maximum price to buy or sell.

Another advantage is that they can minimize your risk of loss if your trade is still not filled when you cancel the order. You already know how volatile the cryptocurrency market can be. So in cases where the market changes direction, traders can get out with little to no loss.

cons

The downside is in the execution part. Because limit orders are not dependent on the market price, sometimes you may not get excited if the asset price doesn’t hit your desired target. Other times, orders are only partially fulfilled.

stop orders

A stop order is placed to buy or sell a cryptocurrency at the market price once it has reached the stop price. In that case, the order becomes a market order and is executed at the next available market price.

This type of order helps traders protect profits and limit losses. However, like limit orders, they may not be executed even if the target price is reached.

Stop orders can be market or limit. A market stop order is based on the condition that a price reaches a pre-defined target (the stop price) and is executed immediately. Stop-limit orders are a bit more complex and require a more detailed explanation than we provide here.

Stop-Limit Orders

Finally, let’s look at stop-limit orders. By name, this type of order is similar to limit orders. However, the only difference is that traders can enjoy even more freedom than limit order offers. So what are stop-limit orders?

A stop-limit order is a type of order that buys or sells crypto assets once a particular stop price is reached. In other words, you can define it as an order type that will be executed continuously until the entire order is completed. So you can prevent the price from being filled to a price you don’t want. Also, you have more control over what happens with your order than using the market or limit order. You may be confused at this point, but we would do well to give an example.

So let’s imagine you place a stop price for Ethereum at $3,500, which is the price to start the order. And as a trader, you think the price can go as high as $3.7000. You can set a maximum limit price within that region. This region will be considered the price that the asset to be purchased. Therefore, you can take profit when the price reaches $3500, and it doesn’t stop there. By choice, you can continue to profit if the market aligns with your target of reaching $3,700.

advantage

Because of its advantages, a stop limit sell order can help traders determine the minimum price at which they are willing to buy an asset. At the same time, this type of order allows traders to set a maximum price at which they want an asset to be bought. So if the maximum price is not reached, the set minimum price can do its job of execution.

Another price of stop-limit orders is how powerful they are in controlling the volatility of the crypto market. Since it offers more flexibility, traders can effectively minimize risks.

cons

However, the only notable disadvantage of stop-limit orders is the inability to execute orders automatically. Other than that, it is also similar to a limit order in that the execution can also be partial, unlike the case with market orders.

final thoughts

Finally, you should know that an excellent understanding of order types can help you go far in trading. While it does not guarantee anything, it does put you in prime positions to gain confidence and reduce the chance of potential losses. However, you should only take this as an informational piece, and no part of it should be construed as financial advice. If you intend to gain more knowledge, do your best to do more research.