What Are Order Types?

Trading any asset can seem complicated at first, especially if users hear terms like "order books" or "order types" for the first time. Yet, to understand different types of trades and ways to engage with crypto is essential to navigating crypto platforms. This article helps simplify the topic by exploring the key order types, how they work, and which type of order type is best suited for some traders. By the end of the article, you'll understand the foundational knowledge every crypto trader needs. 

Before diving into the different order types, it's essential to understand how trades are executed and the tools that make them happen. A trade involves placing a buy or sell order on the market and completing its execution, which includes a series of events with key points of contact. A successful trade is the execution of a buy or sell order. This execution process typically involves exchanges and their internal systems, which help ensure that the order is matched and completed correctly 

Traders rely on tools like trading platforms, such as Ndax, to execute trades. These platforms provide users with features to engage with the market and set preferences when buying or selling. In essence, platforms offer traders the infrastructure, interface and tools to manage and execute trades effectively within the market. 

What Is an Order Book?  

An order book is a real-time display of buy and sell orders for a specific asset on an exchange. For Bitcoin, it shows the number of bids (buy orders) and asks (sell orders), along with the quantity of Bitcoin traders are willing to buy or sell at various price points. Order books effectively illustrate the supply and demand dynamics of an asset, providing crucial information for trading decisions.

For instance, if Bitcoin is trading at $30,000, the order book would display bids slightly below this price and asks slightly above it. The difference between the highest bid and the lowest ask is called the spread. This information helps traders understand market depth, liquidity, and potential price movements.

Order books typically include key components such as price points, order quantities, and market depth. They play a vital role in matching buy and sell orders, facilitating price discovery, and providing transparency in cryptocurrency markets

Now, let's explore the most common order types available on crypto exchanges and how they function.  

1. Market Orders  
   Market orders allow traders to immediately execute a trade at the first available price without waiting for an asset's price to reach a set threshold. Market orders are suited for traders who want their trades executed quickly and could be ideal when prices move quickly, and traders want to swap between assets. One thing to consider is slippages, which might cause the order's final price to differ from when it was executed, especially during high trading periods.
    
2. Limit Orders  
   A limit order allows traders to set a specific price for executing the trade. Unlike the market order, where the trade is instantly done, limit orders are only triggered if the bids reach the set amount. For example, if the price of Ethereum is $3,000 and users set a buy limit order at 2,900, their trade will only be executed if the price of Ethereum reaches $2,900. The trade is executed only on the number of assets available. The main advantage is that it ensures you only trade at your desired price or better, which can help manage trading costs.
    
3. Stop Orders  
   A stop order triggers a market order once the price reaches a specified level, known as the stop price. Thus, if the price of Bitcoin falls to a certain level, the order will automatically sell to help traders minimize their losses during a trade. Advanced traders use stop orders not only to protect their potential profits but also to reduce the need for constant monitoring and provide an automated way to cut losses.
    
4. Take Profit Limit Orders  
   A take profit limit order is a tool similar to stop orders, which automatically sells or buys assets when the desired price target is reached. For example, if you bought Bitcoin at $30,000 and want to sell it at $35,000, this order ensures it's sold when the price hits your target. Its main advantage is that it can potentially lock in profits and remove emotions from trading decisions. However, a potential downside is that it might not execute during highly volatile price movements.
    
5. Stop Market Orders  
   A stop market order triggers a market order, enabling faster execution once the stop price is reached. For example, if Bitcoin drops from $30,000 to $28,000, your sell order is executed immediately at the current market price. This type of order is best suited for traders who value quick execution over precise pricing. It offers the advantage of being faster than stop-limit orders and helps reduce risk in volatile markets, though it comes with the downside of being prone to slippage.
    
6. Trailing Stop Orders  
   A trailing stop order dynamically adjusts as the market moves in your favor, locking in profits while protecting against losses. For example, if you buy Bitcoin at $30,000 and set a 5% trailing stop, your sell price will automatically rise as Bitcoin's price increases. If the market reverses and drops 5% from its peak, the order executes. This strategy is best for maximizing gains during upward trends. It captures upside potential, reduces downside risks, and doesn't require constant adjustment. However, it can sometimes execute prematurely during short-term price swings.  

For any new user, it's essential to understand order types to help them know how to place an order, what's involved in it, and how each order type could be used to their advantage. As mentioned in the first part of the article, too many users are scared of crypto exchanges since they don't understand the terminology. Still, to make it easier for them, we're covering how each order type can be used to their advantage.

For starters, market orders could be used for quick trade execution or when traders want to get out of a trade for whatever reason. The next type of order - limit orders- gives traders more control, allowing them to trigger a trade at a set price. Stop loss or take profit orders act as a safety net to potentially secure profits when trading or to minimize losses. Successfully using these order types requires finding the right balance between speed, control, and risk management. 

Anyone who wants to start using crypto or even exchange tokens on the exchange should understand how they work to swap BTC to USDC during periods of high volatility. This is simply the bare minimum they can take advantage of, and for users who want to grasp concepts about trading, complex order types like stop loss, take profit, or trailing stops could empower them to make informed decisions without adding emotions into the process.

Trading isn't a one-size-fits-all skill, and the right order type depends on the scope of the trade and the type of user. Thus, it's necessary to explore and understand each option before going headfirst into trading. Ndax provides traders with basic order types to ensure small or big traders can successfully trade their tokens on Canada's trusted crypto exchange.