Cryptocurrency is gaining momentum in the financial sphere. The crypto industry’s presence is expanding since many exchanges like Binance, Gemini, Coinbase and Robinhood provide people with a user-friendly platform to dip their toes in investing and trading digital assets.
Even if you aren’t tech-savvy, you can start your trading experience with your selected crypto asset. Whether you’re interested in Bitcoin (BTC), Ether (ETH), Cardano (ADA) or Ripple (XRP), you can find an exchange that will cater to your trading needs.
However, you need to understand the different trading order types so you won’t be in the dark when dealing with cryptos for the first time. Browse through Cryptoshimbun to learn more about these trading order types explained simply for your reference.
Trading order types explained: How does it work?
The crypto market is decentralised. Meaning that no central authority can control the trends of the assets and transactions run on a ledger powered by a network of computers scattered around the world.
Although volatile, many investors can take advantage of this and profit from the trends by trading digital assets on crypto exchanges. There are three main order types that you need to know to get started including:
Market orders
To understand how market orders work, you need to know about order books. This record contains the list of all open orders available for trade on the exchange, thus enabling an investor to buy or sell an asset at a specific price.
You can place a market order depending on what the available trading pairs are in the order book. When you place this type of order, you only need to specify the number of assets you’d like to buy or sell. The price will be determined by how the asset performs on the order book.
It’s easy to place a market order because all you have to do is apply directly on the exchange you prefer. This transaction will continue to buy or sell the asset at the best available rate to maximise your profits.
Limit orders
If a market order is dictated by the number of assets you’re willing to buy or sell, the limit order is placed to trade the asset at a specific price. This is utilised by investors to limit the price risks involved in trading a digital coin.
Limit orders are executed once the cryptocurrency you are trying to buy or sell reaches the ceiling price. For example, if you want to purchase BTC that’s currently valued at US$48,986, you need to set the limit order to a specific amount so that it will be purchased at the same value once the price requirements are met.
Stop-loss limit orders
With an open position in the market, you’re risking your assets to losses. Setting up a stop-loss limit order can help eliminate these risks.
This works by setting both a stop price and a limit price on the digital asset you want to trade. The stop price will indicate when the limit order will be placed while the limit price determines when the order is executed.
This means that your order will be placed at a certain time with a specified price limit. A stop-limit order will also continue selling the asset until the specified amount is reached. It’s a reduce-only order that won’t be able to open or add any other positions in your order book.
Stop-loss market orders
Similar to stop-loss limit orders, this can help limit your losses on an open position while you’re trading. However, the stop-loss market order will halt the trade and open an order that depends on the last trade price, mark or index price.
Take profit market orders
This order type allows you to set a specific target profit price to close your open position in the order book. It means that the order will trigger a market order once the price is reached for you to profit. This will also close your future position at the best available price if there’s demand for it.
Take profit limit orders
This type of limit order allows you to have a target profit when closing out of an open position. This works by setting a trigger price with which the order will be placed on the order book and a limit price that represents the least price wherein your order can be matched.
Bracket orders
To fully profit from crypto trading, you need to place different simultaneous orders to maximise your positions. This is where the bracket orders come in handy because it is a trading tool that allows you to place three orders simultaneously.
However, this type of trading should fulfil three orders such as:
- An order to open a long-term or short-term position
- Two trigger orders for taking profit and stopping loss.
Different trading styles to know
With the trading order types explained above, you should also learn the different trading styles to help you with your crypto investments. These styles offer different leverages for you depending on what your goals are.
Margin trading
The crypto trading markets are similar to traditional stock exchange trading systems. However, the trends differ because crypto assets are highly volatile. A digital asset’s price can increase or plummet in just a matter of minutes.
Whales—traders that hold large numbers of assets on their accounts—can influence the volatility of cryptocurrencies. This is because their trading activities include vast amounts of assets entering and exiting the market, thus making a specific token price rise or fall.
Margin trading is then a trading type where the investor borrows money from the exchange to carry out the order. This allows the trader to profit from the volatility of the crypto asset. Some exchanges offer this type of trading including Binance, Kraken, ByBit and Huobi.
Scalping
Scalping is a type of trading where you will buy and then sell your assets right away. All your activities in the market can even finish in just a matter of minutes, depending on the volatility of the token you’re holding.
What this style of trading accomplishes are quick and assured profits. The constant small gains you earn from buying and selling the assets can add up quickly if you’re focused enough on your orders.
Day trading
Day trading is a relaxed version of scalping. Instead of trading your positions within minutes, you plan your orders for a day. This is where stop-limit orders come in handy because you can control when the trade will be executed and how much it will sell for.
Swing trading
Although a short-term trade, swing trading needs a specific target. The decision to either buy or sell an asset isn’t just based on how the market changes in a few minutes but on how the asset progresses long term.
This grounds you as an investor and helps you understand how the price dips and changes work for a certain asset.
Investing
One of the proven ways of earning in crypto is by investing in long-term possession. This means that you HODL your assets in the hopes that the value increases over time. You won’t be able to profit quickly from this but it gives you the flexibility to use the asset as a currency or to just HODL it just like gold.