Cryptocurrency traders can use several types of orders to get into and out of this fast-moving market. However, the process is a bit more complicated than just buying and selling tradable assets.
It is critical to understand the distinctions between these orders beyond the traditional “buy” and “sell” concepts, as each type results in vastly different outcomes.
Here we focus on the basic trading order types, how they work, how they differ, and when to consider each.
Market Order
A market order is the simplest form of trading orders, which is used to buy or sell a cryptocurrency at the market’s current best price. Market orders typically ensure an immediate execution of your trade, but it does not guarantee a specified price.
As a cryptocurrency trader, market orders will be optimal when your primary goal is to execute your trade immediately. So, it will be very advantageous when you need to get into or out of quickly at whatever price is available in the market.
Limit Order
A limit order is an instruction to buy or sell a cryptocurrency with a cap on the maximum/minimum price to be paid or received. The order is only filled at the specified limit price, or better.
A limit order protects you from potentially buying or selling the required asset at a price that you do not want. However, it does not guarantee execution as the order will not be filled if the market price is not in line with the previously set quote.
Therefore, limit orders may be appropriate when you think you can open your trade at a more favorable level — a price lower than the market prevailing price when you buy or at a higher price when you sell. Of course, there is no guarantee that this order will be filled, especially if the crypto market is rising or falling rapidly.
Stop Orders
In general, a stop order is an order to buy or sell a cryptocurrency at the market price once it has traded at or through a specified price. If the coin/token reaches the “stop price,” the pending order becomes a market order and is executed at the next available market price. If the conditions are not met, the order is not filled.
The most common type of stop orders is stop-loss orders, which protect your positions by triggering a market order to close the open trade if the price reaches a certain level. The underlying assumption behind stop-loss orders is that, if the price moves this far, it may continue to rise/fall much further. The loss is capped by buying or selling at the stop price.
Stop-Limit Orders
As the name implies, stop-limit orders involve a limit on the price at which they will execute. So, instead of the order becoming a market order, it becomes a limit order that will only get the chance to execute at the limit price or better.
There are two prices indicated in a stop-limit order: the stop price, which will convert the pending order to a sell/buy order, and the limit price.
Availability of advanced order types at crypto exchanges
Not too long ago, a lot of crypto exchanges did not provide advanced types of trading orders. At the time, the inability to execute advanced orders resulted in cryptocurrency traders missing out on profits and taking losses that could otherwise have been prevented.
Fortunately, cryptocurrency trading solutions have evolved quite a bit since then, and what was considered to be innovative over the last few years is now what most traders expect to find.
Zenfuse, for example, allows you to place orders with tens of inputs, including a trailing stop order to buy or sell a coin if it moves in an unfavorable direction. The all-in-one platform also provides contingent orders, which are only executed or activated if certain criteria are met. This includes OCO orders (One Cancels the Other) — a combination of a stop order with a limit order.
Another unique trading feature at Zenfuse is the ‘Panic sell button,’ which could sell an entire portfolio of altcoins for bitcoin with one click if markets suddenly take a dive. Zenfuse can also rebalance a trader’s portfolio distribution in seconds. This feature automates the execution of the necessary trades across various exchanges.
Final Thoughts
Placing an order in trading is simply the means by which you send instructions to your exchange to buy or sell a crypto asset on your behalf. Thus, it’s crucial to identify your primary purpose to determine which order type is most appropriate to achieve it — whether it’s ensuring your trade is filled quickly at the available market price or controlling the price of executing your order.
That said, getting used to all cryptocurrency trading orders can take some time and be a bit confusing at first. There are more order types than we mentioned above, and each order type is a distinct tool, suited to its own purpose. In fact, the number of order types is now almost infinite.
About Zenfuse
Zenfuse is a powerful all-in-one platform for cryptocurrency traders and investors.
It aggregates multiple cryptocurrency exchanges, allowing control of funds via API, and powers up the trading process, making trading more profitable, simple, and stress-free.
Our cross-platform app provides rich analytics of both your portfolio and order history, giving you the ability to control your funds on a mobile device.
