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Crypto Trading 101: Exploring Crypto Order Types and Uses
Trading in cryptocurrencies is all about using the right indicators to buy or sell at the optimal time, as well as executing these trades in the most efficient manner possible. Given the high frequency of volatile fluctuations in the crypto market, selecting the ideal order type that will yield a profit is crucial. Whether you are a day trader or planning to invest for the long term, it is essential for every trader to comprehend these products. In this guide, we’ll delve into various types of crypto orders and what each can do for you in the world of cryptocurrency trading.
Market Orders
Market Orders are one of the most efficient and easiest ways of buying or selling cryptocurrencies. When a trader places an order, it is done at the current market price, which means that the trader is purchasing or selling the coin at this rate, neither higher nor lower. These types of orders are usually applied in situations where traders want an early exit or entry to the market. Example: Let’s assume the XRP’s price is $1 and you’re placing a market order at this price. This means that when you buy or sell the coin at this price, the order will be executed immediately. Pros: Transactions are carried out instantly. Preferred by traders who prioritize speed over price. Cons: Orders won’t be executed if they don’t get filled instantly. Due to slippage, sometimes orders can be filled at a different price than expected.
Limit Orders
A limit order is an order placed by traders to buy or sell the coin at a specific price that is not the current market price. When the price reaches this predetermined value, the order will be executed immediately. Generally, there would be multiple limit orders at a particular price in the order book, and these orders are fulfilled based on the timestamp of the order. This implies that traders who placed their order first will take precedence over orders from latecomers. Example: If Ethereum’s current price is $2,600 and you put a limit order at $2,700 or $2,500, your order will only be executed when the price reaches that value. Pros: Traders can set the price for buying and selling coins. Limit orders help traders avoid slippage and volatility. It reduces the need for traders to monitor the market constantly for good entry and exit points. Cons: The limit order will not execute if there aren’t any buy or sell orders at that specific price. Orders are fulfilled based on the time stamp of the order book.
Stop Orders
Stop orders are placed by traders to protect their gains or mitigate losses, either by selling or buying coins once a certain price is reached. Example: If you purchase Bitcoin for $30,000 and set a stop order at $35,000, your trade will be executed when the price reaches that value. This allows traders to secure a profit of $5,000. Pros: Provides flexibility to traders in deciding on strategies for both short and long trades. It helps limit losses and secure profits due to market volatility. Cons: Short-term volatility could cause the order to execute even if the market is favorable. In volatile markets, it may only be activated after reaching the stop price, which is often not desired.
Stop Limit Orders
Stop limit orders contain both a stop order and a limit order, where traders can set the stop price as well as the limit price. If the coin’s price reaches the stop price, the order does not take place. But when it reaches the limit price, the trade will be completed. Example: To achieve this, you’ll set the stop price at $19,000 and the limit price at $18,500 for Bitcoin while it is trading at $20,000. This means that once the Bitcoin’s price drops to $19,000 (stop price), your order will turn into a limit order. The trade will take place when the Bitcoin price reaches $18,500 or higher. This setup allows traders to control their losses and make sure they don’t sell below their desired minimum price. Pros: It enables traders to avoid selling their stocks at very low prices while not incurring a big loss if the market continues to fall. It reduces the risks associated with trading by limiting the potential losses while protecting profits. Cons: The conditions that have been set must be met before the transaction can occur. Traders need to carefully consider the stop and limit prices, as setting them too close or far apart would result in an unsuccessful execution or reduce the effectiveness of the trade.
Take Profit Orders
Take profit orders are utilized by traders to secure profits generated from selling the coin. These orders are typically placed at a higher price than the current market price, and the trade will be done once the market reaches that specified value. Example: If Ethereum is currently trading at $2,500 while you set take profit order to $2,600, when the price arrives at this limit, the trade will occur. Pros: It helps secure profits automatically. Traders can determine where they’re willing to sell their shares.
Source: cryptotale.org
