Trading crypto at an exchange is done by using buy and sell orders. These orders are simple contracts that allow you to specify which crypto you want to buy, how much of it and for what price. Alternatively, you can enter what you want to sell and the conditions under which you are willing to sell it.
Exchanges offer several different types of orders, each with a specific use. The most common order types include the instant order and market order, each with a quick and simple way to specify your price in fiat or crypto respectively; the limit order, which enables you to input exact selling or buying parameters; and the stop order, a common means of preventing investment loss.
The prices listed in this article are for illustrative purposes only and may not reflect the accurate market price.
COMMON CRYPTOCURRENCY ORDER TYPES ESSENTIALS
- Instant order→ determine your buying/selling price in fiat.
- Market order→ determine your buying/selling price in crypto.
- Limit order→ determine both the price and the amount.
- Stop order→ determine the exit or entry point.
- Trailing stop order→ create a movable exit or entry point.
Trading fiat for crypto
If you want to trade traditional money (USD, EUR) for cryptocurrency, you first need to transfer money to your exchange account. This allows you to purchase any of the cryptocurrencies endorsed by the exchange. You can also use a credit card to make a fast and simple purchase without needing to transfer any funds to your exchange account. When you sell the crypto, fiat currency is transferred to your exchange account.
|I want to spend 10,000 USD. The exact number of coins I get is not my priority.|
If you want to spend 10,000 USD to buy bitcoins as quickly and simply as possible, you can place an instant order. The order will look for sellers in the order book (the list of all currently available buy and sell orders) and make the trade, no matter how many coins they offer. The exchange will match you with sellers until the 10,000 USD is spent. The trades will be executed within the range of the current market price.
You can also use the instant order to sell. You specify how many bitcoins you want to sell (but not the required selling price) and the order will be executed at the current market price. It’s usually not difficult to make an estimate of how much fiat you’ll get – exchanges such as Bitstamp do that for you.
The market order is essentially the opposite of the instant order. Instead of specifying how much fiat you want to spend, you can operate with crypto. Market orders allow you to set how much crypto you want to buy (or sell), while setting aside how much you are willing to pay (or receive).
|I want to buy 10 BTC. How much I pay is not my priority.|
The market order might yield somewhat better prices than an instant order. However, it could take a while before an offer for the specified amount appears in the order book.
If you want more control over how much crypto you get for your fiat input, and vice versa, you might prefer the limit order.
|I want to buy 1 BTC for no more than 50,000 USD.|
Limit orders allow you to specify how much you want to spend to buy a coin, or how little you are willing to accept for your coins when selling (they allow you to set a limit). When you place a limit order, you need to specify both the amount of coins you are buying or selling and the price.
For example, Lisa has 50,000 USD and she wants to get one whole bitcoin for that money. She places a limit order and waits until someone on the market decides to sell at least 1 BTC at 50,000 USD or less. The exchange scans the order book for sellers and matches Lisa with Mark, who’s placed a limit order to sell 1 BTC for no less than 49,900 USD.
Limit buy orders will never execute above the specified price, meaning that Lisa would never have had to pay more than 50,000 USD. Alternatively, limit sell orders will never execute below the specified price, and Mark would never receive less than his specified 49,900 USD for his bitcoin.
If you want to set your selling price above or below the current market price, you need a stop order. Stop orders are useful if you expect the market trends to change.
|I want to sell 10 BTC if the price for 1 BTC drops below 49,000 USD.|
If you speculate that the price of a coin will grow, you can place a stop buy order. You specify the amount of coins to be bought once the price reaches a certain point. Let’s say that you feel confident that the price for 1 BTC will rise from 50,000 USD to 52,000 USD in the next couple of days. Buying BTC when the price reaches 51,000 will ultimately result in each of your coins being worth 1,000 USD more if the price hits 52,000 USD, as you expect it to.
Stop sell orders are commonly used to protect against losses in the volatile environment of cryptocurrencies. If you suspect that the price of BTC will fall, but are not sure when, you can place a stop sell order just below the current market price. If the price falls from 50,000 to 40,000 USD and you’ve opened a stop order at 49,000, for instance, then you’ve neutralized 90% of the loss.
4.1 Trailing stop order
The trailing stop order is a variation of the stop order that traces, or trails, the price direction of the cryptocurrency you’re interested in and adjusts your order accordingly. It automatically moves the position you have secured, in case the price of the crypto changes.
Let’s say the market is bullish, but you expect the trend to reverse soon. If you place a stop sell order at 49,000 USD when the price for 1 BTC is 50,000 USD, but then the price keeps rising, you’re giving up potential profit. If the price grows to 52,000 USD before falling to your stop order trigger point, then you would lose out by not having set your stop order higher.
The trailing stop order automatically adjusts the trigger price of your stop order. The order will rise alongside the market until the price trend reverses. In the example above, your order would trail the rise of the price at the same distance (the spread of 1,000 USD) and execute at the minimum of 51,000 USD, instead of the original 49,000 USD.
Try using the orders yourself
If you’re looking to make a quick crypto investment or if you want to make crypto trading a part of your life, it is essential that you are familiar with the most common order types. Knowing these basics will make it easier for you to explore all order options that exchanges offer.