Maybe you’re new to cryptocurrency trading or just haven’t explored all of the different order types available on your crypto exchange. In this article, we’ll define the order types and tell you how and when you might use them.
We’ll be discussing these 3 Types of Orders
Limit and Stop orders can also include a “Time In Force” aspect, which we’ll touch on later.
Want to buy Ethereum (ETH) right now? You’ll place a Market Order.
A Market Order is an order to buy or sell a specified quantity of a cryptocurrency or digital asset at the best available price of existing orders on the order book. Market Orders are immediately posted to the order book. This is the most utilized order type and it’s the simplest to use.
When placing a Market Order (or any order for that matter) on a crypto exchange, the first step is to select your Trading Pair – what you want to buy and how you want to “pay” for it.
For each Trading Pair, the asset being priced on the order book is called the Base Asset (the asset on the left) and the asset in which trading prices are denominated / quoted on the order book is called the Quote Asset (the asset on the right). As an example: when you place an order on the ETH / USD order book, you are placing an order to buy ETH and pay in USD. In the ETH / USD trading pair ETH is the Base Asset and USD is the Quote Asset.
It is important to note that your Market Order may fill at a number of different prices depending on the quantity of your order and the quantities of the other orders on the order book at the time.
A Limit Order is an Order to buy or sell a specified quantity of a cryptocurrency or digital asset at a specified price.
Let’s assume that Bitcoin (BTC) is currently trading at $50,000 (for example). However, you want to buy Bitcoin at $45,000. So, you would place a Limit Order for the quantity of BTC you want to buy at the price of $45,000.
When you place a Limit Order, the order will only ever fill (or execute) at the specified price – OR at a better price. In the example above, when BTC hits $45,000, the order will fill.
If the price of BTC leaps from $45,100 to $44,900, your order would execute at $44,900 which is a better price than you originally placed your order for.
A Stop Order is an instruction to buy or sell a specified quantity of cryptocurrency or digital asset at the market price, but only if and when the asset has traded at or through the specified price (Stop Price). A Stop Order is considered “active” until it executes (when the Stop Price is triggered). If the asset doesn’t reach the Stop Price, the order is not executed. It’s important to note that the Stop Order is not guaranteed to execute at the Stop Price. Another interesting aspect of a Stop Order is that it is not posted to the Order Book on the crypto exchange, so it is not visible to other traders.
A Stop Order can be used to help protect a gain on a particular asset. For example, you bought BTC at $45,000 and it’s now trading at $50,000. If you want to “protect” part of your gain, you could put a Stop Price at $48,000. If BTC falls and hits or goes below $48,000, it would trigger the Stop Order and your BTC would sell at the market price.
A Stop Order to sell may be used by investors to limit the loss they are willing to take on a particular asset (“stop-loss”). For example, if you have 100 Litecoin (LTC) and you paid $300 for each – you can place a Stop Order at $275 so that if the price were to swing downward, you would only (theoretically) take a $25 loss for each of the 100 LTC (so $2,500 total loss). We say “theoretically” since when the Stop Order triggers, it would sell at the market price, which may have dropped below the $275 trigger in the order.
Time In Force Orders
As mentioned above, Limit and Stop Orders may be placed with a ”Time in Force” instruction. You can use these Time In Force instructions to provide additional parameters to your order.
If you want to place the above described Limit Order, it could be a significant time period before BTC would hit the $45,000 price you want to pay. However, having an open order ties up your asset (hold) while the order is pending. Thus, you can use Time in Force orders to provide a timeframe parameter to your order to avoid having to physically go into your crypto exchange account and cancel your order if the order does not fill because the parameters are not met.
Good Til Canceled: Your order will remain on the Order Book until 1) it meets the parameters specified and is filled or 2) you cancel the order.
Immediate or Cancel: Your order will only be posted to the Order Book to the extent that it would be immediately filled – and any remaining quantity is canceled.
If you place a large order of ETH and there is only enough quantity on the order book to fill 60% of your order, the order will execute / fill at the 60% and the remaining 40% quantity you wanted to buy will be canceled.
This type of order parameter allows you to buy the most quantity of the digital asset specified in your order, but doesn’t tie up your funds waiting for more inventory to be added to the order book so your order can be filled completely.
Fill or Kill: Your order will only be posted to the Order Book if it would be immediately and completely Filled.
In the previous scenario, if you placed a Fill or Kill order for that large quantity of ETH, the order would be “killed” as there is not enough quantity of ETH on the order book to fill the order 100%. This is an “all or nothing” order parameter. While this may not make sense to a new trader, more experienced traders will use this option to ensure a specified quantity and price quote are achieved based on their individual trading strategy. This is important as many traders are very particular with their price quote and order size in order to successfully forecast their projected earnings.
Good Til Date: Your order will remain on the Order Book until the specified expiration time and date, unless it has already been filled or canceled by you.
Let’s say you want to place the above Limit Order to buy BTC at $45,000. However, you are only willing to tie up your funds for one week, waiting for the price to hit the $45,000 mark. In this instance you would place a Limit Good Til order. If BTC hits $45,000 (or lower) during the period, the order will fill. If it does not, the order will automatically be canceled at the end of the period.
Day: Your order will remain on the Order Book until End of Day, unless it has already been filled or canceled by you.
This is the same principle as the Good Til Date order and you could technically place a Limit Good Til order and specify today’s date and the end of the period. Using the Day order parameter provides a shortcut for orders you want to either fill or cancel by the end of the day.
Now that you have a little more context around the various order types available in crypto trading and how you might use them, we hope this will give you the tools needed to evaluate if or how you’ll use the different order types based on your individual trading strategy.
The above examples are for illustrative purposes only and do not cover all of the possible uses for the various order types. In addition, the order types available may vary across crypto exchanges.
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