3min read
Published on: Feb 26, 2024
#Blockchain
Did you know that understanding the different trading orders like market, limit or stop-loss orders can help you create the right trading strategies and significantly increase your success while trading?
Trading can be pretty complex for anyone, but with the proper knowledge, you can navigate your way through it.
This article will explain what trading orders are, the types of trading orders, and quick examples of how to use them while trading.
Key Takeaways
A trading order is a set of instructions that specifies the terms of a trade in the stock and crypto market. An investor uses a trading order to direct whether to buy or sell cryptocurrencies or stocks on a trading exchange.
An investor should know how to make use of different trading orders to optimise their portfolio performance.
In the trading world, a trading order acts as a tool or set of instructions specifying the terms of a trade. Traders use this to direct when to buy or sell cryptocurrencies and stocks on an exchange or in the financial market.
In this article, we will be explaining trading orders to crypto.
Here is a practical example of how trading orders work:
Exchange platforms' algorithms swiftly and automatically execute trading orders. This allows traders to enter and exit positions efficiently without constant market monitoring.
Trading orders offer traders flexibility in their trading strategies. Whether they prefer to trade quickly with market orders or wait for specific price points with limit orders, trading orders allow traders to adapt to different market conditions and personal preferences.
Recommended Read: Cryptocurrency Investment Strategies for Beginners
By using different types of trading orders, traders can diversify their trading approach. For example, they can combine market orders for quick trades with limit orders for longer-term investments. This diversification helps spread risk and maximise opportunities in the market.
Trading orders allow for automation in trading activities. Traders can set up orders to execute automatically based on predefined conditions, such as price movements or specific timeframes. This automation frees up time and reduces the need for constant market monitoring.
Trading orders instil discipline in traders' actions. By sticking to their predetermined orders, traders avoid making impulsive decisions driven by emotions or market fluctuations. This disciplined approach contributes to more consistent and rational trading behaviour over time.
Trading orders make trading accessible to a broader range of participants. Whether you are a novice trader or an experienced investor, trading orders provide a straightforward and systematic way to engage in the market, regardless of your level of expertise.
Trading orders help traders lock in profits by automatically selling a cryptocurrency when it reaches a specific price, ensuring they capitalise on potential gains.
Trading orders allow traders to set up orders in advance, reducing the need for constant market monitoring and ensuring the timely execution of trades.
Trading orders help traders avoid impulsive decisions driven by emotions, promoting a disciplined approach and potentially more consistent results.
Here are some popular trading orders:
A market order lets you buy or sell cryptocurrency instantly at the current market price.
It is executed immediately since the price used is the latest market price.
Note that there is a minor difference between the price you place your order at and the price at which the order is purchased due to price volatility. It also depends on how liquid the stock is.
For example, if you need to buy Bitcoin quickly, you can place a market order for 1 Bitcoin. The exchange matches you with a seller at the current market price, filling your order instantly.
A limit order enables you to set a specific price for buying or selling cryptocurrency.
For example, you decide to buy Ethereum if it drops to $2,000:
If Ethereum falls to $2,000 or lower, your order is carried out at that price.
Learn all about Ethereum here.
A stop-limit order sets a trigger price. When the cryptocurrency hits this price, your order turns into a limit order, executing only at a specified price or better.
For instance, you hold Ripple (XRP) and want to sell it if the price drops to $0.50.
You set a stop-limit order with a stop price of $0.50 and a limit price of $0.48.
If XRP falls to $0.50, your order becomes a limit order to sell at $0.48 or better, thereby protecting your investment.
A stop-loss order acts as a safety net. You set a price threshold, such as $35,000 for Bitcoin.
If the price falls to or below this level, your order automatically sells your Bitcoin, protecting you from further losses.
For example, if you bought Bitcoin at $40,000 and set a stop loss order at $35,000, your Bitcoin will be sold if the price drops to $35,000.
A cover order combines the features of a market order and a stop-loss order. It ensures that the maximum possible loss is known in advance if the trade moves against the trader’s expectations.
A cover order is allowed only during intraday trading. Any open intraday position for a cover order is automatically squared off by the trading exchange if it is not closed by the closing time.
A trailing stop is like having a guard for your investment. This works by setting a percentage below the highest price your cryptocurrency has reached.
For instance, if you bought Bitcoin at $30,000 and it rises to $40,000, you might set a trailing stop at 10%.
If the price drops 10% from its peak (i.e., $36,000), your cryptocurrency will be sold automatically, securing your profits.
A limit sell order sets a target for your crypto's price to reach before selling. Suppose you believe Bitcoin will hit $50,000 soon, but you are patient.
You can set a limit sell order at $50,000. Once Bitcoin reaches or surpasses this price, your order triggers, and your Bitcoin is sold at the fixed price, securing your profit without needing to watch the market constantly.
Read More: Stock Market Basics for New Investors
Other popular types of trading orders:
An All or None order means you want to buy or sell a certain amount of cryptocurrency, but only if you can get all of it at once.
For example, if you want to buy 5 Bitcoins but only if you can get all five together, you would use an AON order. If there aren't enough Bitcoins available at your specified price, the order won't happen.
An Immediate or Cancel order is when you want to buy or sell cryptocurrency immediately, but you're okay if you cannot get all of it immediately.
If you're buying, you will take whatever amount is available at your price, and if you're selling, you'll sell whatever amount you can at your price and cancel the rest.
For example, if you want to buy 10 Ethereum but only seven are available at your price, you'll buy those seven and immediately cancel the order for the remaining 3.
A Take Profit order helps you secure profits when trading cryptocurrencies. It's like setting a target for selling your digital assets at a specific price to make a profit.
For instance, if you bought Bitcoin at $30,000 and believe it will go up to $35,000, you can set a Take Profit order at $35,000.
Once the price exceeds $35,000, your Bitcoin will be sold automatically, locking in your profit.
Market and limit orders differ in the following ways:
Features | Market Order | Limit Order |
Execution Speed | Market orders are super fast. When you place one, it gets done almost immediately because it grabs the best price available right then. | Limit orders wait until the market price matches your set price before executing. |
Price Control | With market orders, you can't pick the price. You get the current market price. | With limit orders, you decide the price you want to buy or sell at. |
Fees | Market orders are fast but come with higher fees. | Limit orders have lower fees because traders who use these orders are not in a hurry to buy or sell. |
Whether you are a seasoned trader or a novice in the world of trading, here are some basic trading strategies every trader should know when making use of trading orders in their crypto trading strategies:
Understanding the Basics: Learn about cryptocurrency's uniqueness and common trading concepts like order books, trading pairs, and order types.
Know Your Order Types: Familiarise yourself with different order types, such as market orders, limit orders, and stop orders. Each type has pros and cons, so learn when to use them effectively.
Technical Analysis: Get comfortable with technical analysis charts and tools. They help predict price movements and inform your trading decisions.
Risk Management: Use tools like stop-loss orders to protect your investments from market drops. They limit losses if things don't go as planned.
Advanced Strategies: Explore advanced strategies like fill-or-kill and immediate-or-cancel for specific needs. Conditional orders such as buy stop-limit and sell stop-limit let you set target prices and timeframes.
A trading order is a set of instructions that specifies the terms of a trade in the stock and crypto market. An investor uses a trading order to direct whether to buy or sell cryptocurrencies or stocks on a trading exchange.
Suppose BTC is trading at $55K and a trader places a buy order for 1 BTC at a price limit of $50K. The moment the price of BTC comes down to $50K, the system executes the buy order.
A sell order works similarly.
An exchange automatically executes trading orders, allowing traders to enter and exit positions without constant monitoring of the charts.
There is no trading order which can be considered the best.
Traders should follow these golden rules of trading for best results:
This article is for informational purposes only and not intended as investment or financial advice. It contains opinions and speculations that are subject to change without notice.
The author and publisher disclaim any liability for decisions made based on the content of this article. Readers are advised to conduct their own research and consult a financial advisor before making investment decisions.
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