After bitcoin was launched more than a decade ago, the only means to trade our digital currency was via peer-2-peer on the Bitcoin talk forum.
Although the method is not too safe, bitcoin is worth next to nothing. No one knew the price would surge to this present one.
Blockchain came with many transformations. We now have more reliable and highly regulated Centralized cryptocurrency exchanges. Trading with these exchanges is much safer. They facilitate and execute several billions of dollars worth of crypto trading daily. These exchanges comply strictly with laws such as Know Your Customers Law(KYC), Anti-money laundering laws, and Counter-Terrorism Financial laws.
For easy trading, cryptocurrency exchanges developed and made trading tools available on their platform. These tools are called “trading orders”. They are designed to help traders execute buy/sell trades at a preferred time to maximize profit and reduce loss risk. Traders can now easily control their trading activities.
There are different types of cryptocurrency trading orders. Traders do not necessarily need to use all these types of trading orders at once but some veterans still use one or all of them to trade depending on their trading strategies. Before you can use these trading orders, you need to understand what an “order book” means.
WHAT IS AN ORDER BOOK?
An order book is electronic trading data that displays the demand and supply of every cryptocurrency on the crypto exchange. It contains the lists of all ‘bid’, and’ ask’ prices. It also has the market depth of each digital asset.
The order book is publicly available for all users/traders to see. The order book includes the buy order section, and sell order section. The price data in the order book changes as traders place their transactions on the exchange.
TYPES OF CRYPTO TRADING ORDERS.
LIMIT ORDER
A limit order allows traders to buy or sell digital assets at a predetermined price. It allows traders to place orders in an order book. You can put your preferred price in the order book which may be higher or lower than the current market price. The limit order can only be triggered when the price reaches the limit set. This order is useful to use when you are not in haste to trade. It will help you trade at your desired price and prevent you from incurring much loss. The ‘buy limit’ order is put on the ‘bid side of the order book while the ‘sell limit’ order is put on the ‘ask side’ of the order book. So when the market price reaches the ‘buy/sell limit you’ve set, your buy/sell order would be taken by another trader that wants to buy/sell at that price. This means your open order is executed and trade is completed.
Your order will be filled automatically after your trading limit is set. You must first understand how this trading order works before placing your order and must be careful when filling the order to avoid mistakes.
Let’s say you set a limit order to buy $3000 worth of DOT when the price drops to $5.5. All you need to do is to place your order in the order book, your order would be triggered when the market price comes to that level. The same goes for selling. However, there is no guarantee that the price would reach that level on time, therefore, the price might not be filled.
MARKET ORDER
The market order allows traders to buy or sell their digital assets immediately at the best available current price. It is the easiest type of trading order for beginners.
The price of your trade is determined by the current available market price. The trade will be completed instantly or close to the next price after you placed the order. The price is decided by the current best price in the market.
Let’s say you want to buy 10 $ SOLs at $28 each. You pay $280 and your trade is executed immediately.
STOP LIMIT ORDER
Stop limit orders allow crypto traders to decide on the comfortable profit and loss level that can sustain their strategy. It consists of both stop price and limits price.
Traders must specify a stop price and limit price. The stop price triggers the limit price when the price gets to the stop price. For instance, let’s say 1 BTC is $19,176 and the trader wants to buy the coin when it is having bullish momentum, the traders can set their buy Stop-limit order with the stop price of $19,206 and a limit price of $19,236. So if the price moves above $19,206 which is the stop price, the order would be filled and it will create a limit order. Therefore ‘sell stop-limit orders are placed below the market price while buying stop-limit orders are placed above the current market price.
Stop-limit orders protect traders against market price volatility, reduce losses and help to protect their profits.
TRIGGER ORDER
The trigger order allows traders to pre-set their orders automatically. It helps traders lock their profits and limit their losses when trading. Trigger order is usually set at a trailing amount from the market price.
If the price reaches the trailing amount, the stop price does not move. This is because it can either be a limit order or a market order. Traders need to have a good hypothesis about the market’s future price movement. Trigger order is used to prevent a big loss
