Guide to Crypto Trading Order Types
Here's a fact: crypto as a form of currency is getting popular, and it's not hard to see why. It's a secure and profitable investment that also doubles as a reliable mode of payment. This digital currency is also decentralized, which means its control is not under the control of central authorities or governments.
Unfortunately, most people hurry to buy crypto without first understanding how it works. This is extremely risky, especially if your main interest in this digital currency is for investment purposes. Keep in mind that crypto trades are very speculative. So, it’s critical that you acquaint yourself with the available trading tools, including order types.
A Quick Overview of Buying and Selling Crypto
If you are new to crypto trading, understanding how it works can be challenging at first. Thankfully, learning the ropes is relatively easy. You can start trading by following this process.
1. Choose a Trustworthy Broker or Cryptocurrency Trading Platform
A crypto trading platform allows buyers and sellers to interact while trading crypto. One of the reasons why trading platforms are so popular is that they often have relatively low charges compared to other trading options.
They, however, have more complex interfaces with numerous advanced trade charts, all of which can be intimidating to beginners. If you’re just getting started on crypto trading and want to use a trading platform, go for companies that offer user-friendly options, such as NDAX.
This platform has simplified the crypto trading process into 3 steps: sign up, invest and trade. Simple as that!
2. Creating Your Trading Account
Open and verify your account so that you can start trading. You’ll be required to provide your personal information, in this case, your name and an email. The exchange will then send you a confirmation link in your email to verify that that is indeed you.
Once your account has been approved, you need to add a payment method that you can use for deposits and withdrawals. You can do this by simply linking your card. Depending on the trading platform, this is enough to set up an account.
Some exchanges, however, require you to verify your account, and with NDAX, they have an instant ID verification feature that's highly convenient.
3. Depositing the Cash to Invest
To deposit cash in your account, you can link your bank account to your trading account. Ensure that you deposit enough funds in your bank account before making the transfer.
After depositing the money, you can start trading instantly.
4. Placing Your Cryptocurrency Order
You can place your crypto order immediately and deposit money into your crypto account. There are several cryptocurrencies to choose from, with Bitcoin being the most popular, followed by Ethereum, but you should also consider less popular currencies, including Polkadot or Aave.
The best part is that with NDAX, you’ll have access to one of the largest portfolios of coins in Canada.
5. Selecting a Storage Method
This step is critical in protecting your investment. Since federal protections do not back cryptocurrencies, they are at risk of theft or hacking. The good news is that you can take steps to ensure your digital assets are safe.
Cold crypto wallets or hardware wallets are your best bet when storing your cryptocurrencies. These wallets are not connected to the internet, and the risk of hacking and theft is low.
For instance, hardware wallets generate a set of private keys which you should keep offline(don't share this code with anybody). It keeps your private keys offline, so the crypto can't be accessed by anyone without the specific codes.
Not all cold wallets are the same, so you should research to ensure you get one with advanced security levels.
What Are the Main Trading Order Types?
Now that you know how to start buying or selling crypto, you’re now ready to explore the types of trading orders. But first things first, what are trading order types?
A crypto trading order is necessary when selling, buying or exchanging assets through a trading platform. Orders are basic contracts that enable you to specify which cryptocurrency you want to buy or sell and at what amount. A crypto order can also include the specific conditions you are willing to buy or sell it.
Different orders allow traders to buy or sell crypto with a lot of flexibility.
There are several types of crypto orders to choose from, with Market orders, Limit orders, and Stop-limit orders being the most popular. Here’s a comprehensive guide to all of them. Let’s dive in!
1. Market Orders
This trading order type is the best option for a beginner and is considered the most basic order type. It is also the easiest to understand and implement.
A market order is an instruction to immediately buy or sell a cryptocurrency at the best price in the crypto market. It ensures that the order is executed for the trader at the set price or near the current price. This order is perfect for investors who don't want to keep price watching or those with little patience.
A market order is often considered a taker order. This is because it removes liquidity from your order book by instantly matching the top limit order available. One of the elements that set market orders apart from stop orders is their instant execution which means that you can't cancel them.
● Their fulfillment is guaranteed.
● Perfect for beginners.
● Removes liquidity from your order book.
● Their execution is instant.
● They are susceptible to slippage.
2. Limit Orders
This type of trading order is an instruction to buy or sell crypto but at a price set by you, the trader. Limit orders are perfect for traders who are looking to play the long game and can patiently wait for the digital coin to hit a target price.
Please note that the instruction can only be executed when the target price is met; the order will not be executed if the market does not get the limit price.
One of the aspects that sets aside limit orders from market orders is the level of flexibility given. Crypto limit orders allow you more room for change with the crypto price and amount. This kind of flexibility enables traders to have more control and reduce their risk without them having to monitor the crypto market constantly.
● High levels of flexibility.
● Gives traders more control.
● Have lower risks than market orders.
● Don't require you to keep tabs on the market.
● They are only executed if the crypto reaches your set price.
3. Stop Limit Orders
A stop-limit order is basically an order that is not instantly executed. It is a blend of stop and limit orders and involves two prices: the stop-price, which converts the order to a buy or sell order, and the limit price, which is the maximum price that a trader is willing to buy or the minimum he's ready to sell.
You should note that execution is not guaranteed with this type of order once the stop price is reached. However, stop-limit orders can limit the losses if the crypto price moves against the investor’s advantage.
Traders can use stop-limit orders when establishing new positions at price levels that they believe represent the start of a new trend in the same path.
● Offers some level of risk mitigation.
● You're in charge of setting the minimum price you can accept from a buyer.
● Offer some level of control against the volatile crypto market.
● Offers the best of stop orders and limit orders.
● Execution is not guaranteed.
A stop order is also referred to as a stop-loss order. It is an instruction to buy or sell crypto when the price hits a specified price referred to as the stop price. Once this happens, the stop order then becomes a market order.
There are two main types of stop orders: a buy stop order and a sell stop order. A buy stop order helps you limit a loss or protect the profit on a cryptocurrency already sold. On the other hand, a sell stop order is used to limit loss.
● Limits your losses.
● Protects your profits.
● Execution is not guaranteed.
5. Trailing Market Order
Online brokers often use an exit strategy known as a stop-loss to limit investor losses.
For instance, if the prices dip to a specific price, the crypto will automatically be sold at the current crypto market price to prevent further loss. Traders can enhance the efficiency of a stop-loss order by partnering it with a trailing stop.
A trailing market order gives you the flexibility to pre-set a bid at a certain percentage from the current market price. This ensures that when the market swings, your gains are protected, especially when the trajectory of the market prices doesn't move in a direction that they consider to be favourable.
● Protects your profits.
● Reduces potential losses by executing a sale when the price reaches a certain point.
● Offer some level of flexibility.
● Robs you of the chance to make analytical decisions when crypto prices dip.
6. Trailing Stop Limit Orders
A trailing stop limit order allows the investor to set a trigger delta. This refers to how much the market prices could fall before you'd want to sell or raise before you'd like to buy. The trigger delta can be as a percentage or a dollar amount, and it doesn't change when crypto market prices change directions.
It can build investors' confidence in their trading strategy when selling by providing a way for them to gain from an increase in prices and specify a value price on low prices of a cryptocurrency. When buying, a trailing stop limit order can be used to protect profits generated through short selling or when an investor is trying to buy a stock that is bouncing off a market low.
● It doesn't limit your profits.
● This order is relatively flexible.
● Your crypto is automatically sold when prices hit a certain price drop.
● Challenging to use this order type on volatile crypto.
7. Immediate or Cancel Order
An immediate or cancel order (IOC) is an instruction to trade crypto that focuses on immediately executing all or parts of your investment. If some of your cryptos remain unfulfilled, this order type cancels the order.
You can use an IOC order to specify how long you’d like your order to remain active in the market and the conditions that warrant its cancellation. It especially comes in handy when the crypto market is volatile.
Based on your execution requirements, you can either go for a ‘limit’ IOC or a ‘Market’ IOC. An IOC limit order executes a sale when the price reaches a certain point, while an IOC market order executes the instruction at the best offer price.
● Great for volatile markets.
● Gives you high flexibility.
● You can execute multiple IOC instructions.
● Can be complex for beginners.
8. Reserve Iceberg Order
A reserve iceberg order allows you to hide the actual size of your order. Instead of displaying your entire order, which might have a huge market impact, you only show a fraction of its actual size.
The main advantage of this is that you're able to submit a significantly large order while only disclosing a portion of it. This is especially useful when the crypto market doesn't have enough liquidity to handle the order without causing a significant price impact.
Identifying potential icebergs is highly valuable and should be one of the focal points of your trading strategies. These types of orders are relatively difficult to determine, but you can spot an iceberg order by looking for bids that instantly reload soon after they're lifted.
● Allow you to execute large trades.
● Great for markets with low liquidity.
● Prevents other traders from determining your full trade exposure.
● Relatively difficult to spot from other traders.
9. Fill or Kill Order
Fill or Kill (FOK) order is a conditional instruction that requires the transaction to be executed to its full amount at a set price immediately. It doesn't allow partial execution, and the order must be automatically cancelled right away if any conditions are broken.
Brokers only use the fill or kill order to purchase large amounts of cryptocurrencies at a set price and time. This is because a slight price change can significantly impact the outcome of the trade when purchasing a large amount of crypto.
● Allows you to execute large orders at a particular price.
● All order executions are timely.
● Very rigid and price changes can highly impact your trade.
You’re Ready to Make Trades!
Different orders enable investors to trade in cryptocurrency with a lot of flexibility. Before choosing the right order type, you should consider the amount of cryptocurrency you are purchasing, the target price, and the timing of the transaction.
Understanding the fundamentals of the order types makes it easier to execute profitable trades. Just ensure the timing is done carefully so that quick price swings don't disadvantage the trader.
If you are new at this, try investing a small amount that you can afford to lose at first until you understand the crypto market. It takes time to be a master trader and learn the tricks and trends in the crypto market.