Order Types

Summary

You interact with the market by placing orders when buying and selling stocks or cryptocurrencies:

· A market order is an immediate buy or sell order (at the current market price).

· A limit order is an order that waits until the price reaches a certain limit before it is executed.

These are the most basic orders. Of course, the two have different types that offer different functionality depending on how you work. Want to know more? Read more.

Introduction

Have you registered on the exchange and are wondering what the different keys do? You may have come across Wall Street again and are trying to better understand how the stock market works.

In this article, we'll take a closer look at orders, which are instructions that you send to the exchange to buy and sell assets. As we will discuss shortly, orders are mainly divided into two types: limit orders and market orders. But these are just attributes used to describe a set of commands.

Let's start our review.

Market orders and limit orders

Market orders are orders for immediate execution. Essentially, these orders feed an order to trade at the current price. Let's say you are using Binance. You want to buy 3 BTC and Bitcoin is trading at $15,000. You are willing to pay $45,000 against a currency and you don't want to wait for the price to fall, in which case you place a buy order on the market.

I'm curious as to who is selling these coins. We need to look at the order book to understand this. The place where the exchange keeps a large list of limit orders or orders that are not immediately executed is the order book. These orders specify the type of trade to be executed at this price.

In the preceding example, another user may have previously placed an order instructing the exchange to sell 3 BTC at a price of 15,000 USD. To put it another way, when you place a market order, the exchange matches it with the limit order on the ledger.

You don't actually create an order, but instead take an existing order and remove it from the order book. This makes you a market participant because you get some liquidity in the stock market. Meanwhile, the remaining users become market makers as they add liquidity to the stock market. Market makers often pay lower fees because they benefit the stock market.

Learn more about the relationship between these two types of users. What are market makers and market takers? You can find our article here. If you want to better understand how exchanges work, we recommend reading this article.

What you need to know about market orders

Buy and sell orders are the most basic market orders. You instruct the exchange to complete the trade at the best available price. However, it should be noted that the current price displayed at the time may not always be the best available price. The best price depends on the order book, so you can trade at a slightly different price.

Market orders are suitable for instant (or near-instant) trades, but the usefulness of these orders is limited to that. Rolling and conversion fees mean that the same trade can be cheaper if a limit order is used.

Common order types

The simplest commands are: market for buy orders, market for sell orders, limit for buy orders and limit for sell orders. But if you only use these orders, you may have limited trading experience. Instead, you can add to these orders to get the most out of market conditions in both the short and long term.

Stop-loss orders

A stop-loss is a type of market order that involves placing an OTC sell order at a specific price. As the name suggests, this order is designed to protect you from significant losses. At first glance, this appears to be a limit order, because instead of trading at the market price, you set the price at which you will sell. But this order was not added to the order book. The trading platform converts stop orders to market ones only when the trigger price is reached.

Stop-limit orders

Stop orders are another useful tool for limiting losses on a trade. This is somewhat similar to the stop-loss orders we discussed in the previous section, but there is an additional step here. If BTC is trading at $10,000 and you place a stop-loss sell order for $9,990, you are guaranteed to sell your savings when the price drops by $10.

But you may not get the exact price you want. Stop-limit takes advantage of both sides to get the price you want. Continuing with the 10,000 BTC example above, you set two parameters: a stop price and a limit price. For example, your stop price could be $9,985. Achieving this price will require the exchange to place a limit order at the limit price you set (for example, $9,990).

If the price rises to that level again, you will sell your savings for $9,990 or more. However, it should be noted that the order will only be placed when the stop price is reached. Here you still have your risk. Risk is the price. I won't do it. bounce back and you have no protection if the price continues to drop below $9,985.

One cancels the other (OCO) orders

One cancels the other (OCO) order is a sophisticated instrument that allows you to combine two conditional orders. As soon as one of the orders is activated, the other will be canceled. Taking our example again, where BTC is $10,000, you can use an OCO order to buy bitcoins if the price drops to $9,900, or sell them if the price rises to $ 11,000. One of them is executed first, which means that the second will be canceled automatically.

What is the validity period?

Another important concept associated with orders is expiration, a parameter that is set when a trade is opened and makes it easier when it expires.

Valid until cancellation (GTC)

Valid Until Cancellation (GTC) is an order that stipulates that a trade remains open until it is directly executed or canceled. Cryptocurrency trading platforms usually implement this option by default.

A popular alternative to GTC in the stock market is to close orders at the end of the trading day, but since the cryptocurrency market is open 24/7, GTC is often preferred.

Cancel Remainder (IOC)

Remaining Cancellation (IOC) stipulates that the portion of the order that is not completed immediately will be canceled. Let's say you place an order to buy 10 BTC for $ 10,000, but only get 5 BTC at the actual price. You get 5 BTC and the rest of the order is closed.

Cancel if not (FOK)

Unfulfilled cancel order (FOK) is either fully executed or canceled immediately. If your order instructs the exchange to buy 10 BTC for $10,000, then the order will not be partially executed. If it is not possible to immediately buy all 10 BTC at this price, the entire order will be canceled.

Final thoughts

Mastering the types of orders is essential for successful trading. Whether you want to use a stop limit to limit your potential losses, or an OCO order to plan different outcomes at the same time, it is important to know which buy and sell orders you can use.