So you want to trade cryptocurrency, but you’re not sure what all the different terms mean.
Don’t worry, In this article, you’ll find the most important and commonly used crypto order types and the explanation of how they work.
Trading Crypto: How To Trade Crypto
Cryptocurrencies are digital tokens and are decentralized, it means that they are not under the government or financial institution control.
Cryptocurrency trading is the act of buying and selling cryptocurrencies. Cryptocurrency traders trade in the crypto exchanges by buying and selling cryptocurrencies and make profit from price changes in the market.
Trading in cryptocurrency is quite risky.
The most important thing to know before trading cryptocurrencies is that the market is highly volatile. Prices can go up or down very quickly, and there is always the chances of making huge losses.
It is important to have a solid understanding of technical analysis and risk management before getting started in trading.
It is also important to understand how exchanges work before getting started in trading.
Exchanges are platforms where traders can buy and sell cryptocurrencies. There are a variety of exchanges available, and each offers different features. It is important to research the different exchanges before choosing one to trade on. You will want to consider factors such as the fees, the types of cryptocurrencies available, and the security of the platform.
Once you have chosen an exchange, you will need to set up an account and deposit funds. Then you will be able to buy and sell cryptocurrencies on the exchange.
What is an Order?
An order is an instruction to buy or sell on a trading platform. It can be a market order, limit order, stop order, or any other type of cryptocurrency order.
Types of Orders
There are four main types of orders that can be placed on a cryptocurrency exchange: market orders, limit orders, stop-limit orders, and trailing stop orders.
Market Orders:
A market order is an order to buy or sell a security at the best available price. Market orders are executed immediately and fill at the current bid (for a sell order) or ask (for a buy order).
Limit Orders:
A limit order is an order to buy or sell a security at a specified price or better. A buy limit order can only be executed at the limit price or lower, and a sell limit order can only be executed at the limit price or higher. Limit orders are not guaranteed to fill.
Stop-Limit Orders:
A stop-limit order is an order to buy or sell a security at a specified price or better after the security reaches a specified stop price. Once the stop price is reached, the stop-limit order becomes a limit order. Stop-limit orders are not guaranteed to fill.
Trailing Stop Orders:
A trailing stop order is anorder to buy or sell a security at the best available price, but only after the security’s price has risen above (for a buy trailing stop order) or fallen below (for a sell trailing stop order) the specified trailing stop price. Trailing stop orders are not guaranteed to fill.
Fees
Most exchanges charge fees for both buying and selling cryptocurrencies, the more you trade, the lower your fees will be. Some exchanges also offer discounts if you pay your fees with their exchange crypto token.
Deposit/Withdrawal Fees:
Exchanges usually charge a small fee to deposit or withdraw funds from your account. These fees depend on the cryptocurrency being deposited or withdrawn and can vary from a few cents to a few dollars.
Trading Fees:
Most exchanges use a maker-taker fees for trading.
For a Buy order when you place a limit order below the current ask price or place an order above the current bid price for a sell order then you have to pay the makers fee.
Taker fees are paid when you place any order as the market order where it is executed with the orders already present in the order book.
Taker fees are usually larger than maker fees, the more you trade, the lower your fees will be.
Withdrawal Limits
Most exchanges have withdrawal limits that vary depending on your account level.
These limits can be increased by completing certain requirements by the exchange.
Security
The security of an exchange is important to consider when choosing where to trade, very recent example is FTX exchange collapse, cyptosphere itself is very unpredictable here even the topmost exchanges can fall flat without any prior indications.
Many exchanges have been hacked in the past, and some customers have lost their funds as a result.
To further secure customer funds, most exchanges require 2-factor authentication (2FA) for all withdrawals and account changes. 2FA adds an extra layer of security
Exchange Order Book
An order book is simply a list of buy and sell orders for a particular asset, organized by price.
When you place an order on an exchange, that order is placed into the order book at the price you specified. If someone else places an order at that same price, your orders will be matched and you will trade with that person.
If there is no one else trading at the same price as you, your order will sit in the order book until someone else comes along and matches it.
The exchange order book can be thought of as a virtual meeting place for buyers and sellers of an asset. It’s where they come to find each other and agree on a price.
Conclusion
In conclusion, if you are a beginner in the crypto world, it is important to understand the different types of orders that exchanges offer. Each type of order has its own benefits and drawbacks, so it’s important to choose the one that best suits your needs. Additionally, understanding how an exchange’s order book works is crucial to making informed trades. We hope that this guide has helped you gain a better understanding of these concepts and that you are now equipped to make more informed decisions when trading cryptocurrencies.
Must read: Day trading and how it works
FAQ
An order book is simply a list of buy and sell orders for a particular cryptocurrency, organized by price. Order books are used by exchanges to match buy and sell orders together.
A limit order is an order to buy or sell a security at a specified price . A buy limit order can only be executed at the limit price or lower, and a sell limit order can only be executed at the limit price or higher.
A market order is an order to buy or sell a security that will be executed immediately at the best available price.
A stop-limit order is an order to buy or sell a security that becomes effective only when the security’s price trades at or through the specified stop price. Once the stop price is reached, the stop-limit order becomes a limit order that will be executed at a specified price.