Before cryptocurrency became widely adopted, a lot of people did not see its value since some did not know how to feel about the idea of decentralised digital money. Despite the criticisms, the perception of this form of currency changed when Bitcoin started to triple its value. Almost all BTC owners became rich overnight due to the value spike, which has led them to sell the coins to interested people.
This is why cryptocurrency and stocks have similarities, especially when it comes to the rise and fall of their values. Aside from that, another common denominator is the trading that happens between two parties. However, in the case of cryptocurrency, trading is all about buying and selling coins or tokens instead of equity shares.
Now that there are a lot of cryptocurrencies in the market, various crypto exchanges have also emerged. With this, you can immediately start your trading journey to get your desired cryptocurrency. Though before you start, you need to know the basics first and read the following sections of this article.
Understanding trading orders and the order book
You must know the origins of trading orders to fully understand them. In stock trading, investors would hire brokers to execute the trading process. An investor must provide an order or a set of instructions that the broker should follow on behalf of the trader. The order has different types and it all depends on how the trader views an asset.
The same logic applies in cryptocurrency where the different trading orders are there to help create successful trading. This means that the time and price of the trade suit both parties.
Another thing you need to know is the order book, which is a list of bids for a specific trading pair. A trading pair can be Bitcoin to US Dollars or Ether to Bitcoin, and each pair has its respective order book. An order book can be considered a marketplace since anyone can join by placing a bid or asking for a selling price. Additionally, all open orders stay in the book until they are completed or cancelled.
There are a lot of trading order types that can occur when trading crypto. To help you, here is a list of the most common ones. Know and understand each one of them to stay informed and make better trading decisions.
Different trading order types
1. Instant order
Instant order is a trading order type that allows you to quickly create a transaction. You only need to state the amount of money you want to spend without minding what you can get in return. In other words, the premise is all about maximising your budget until it is depleted.
Moreover, the instant order also applies if you want to immediately sell your digital currencies. With this method, all you have to do is list the number of coins or tokens you want to sell. Then, the order will follow the current market price for the crypto you are selling.
2. Market order
Compared to instant order, the market order trading type is all about specifying how many coins or tokens you want to buy or sell. You can easily get a quote of its price by declaring how much crypto you want. With this in mind, you can adjust your budget to make the trade possible. Normally, the quoted price you may get from this kind of trade order is based on the current market price of the coin or token you want.
3. Limit order
As for the limit order trading type, you need to set the price you are willing to spend in exchange for your desired coins or tokens. This gives you more control over your terms and conditions because you are setting boundaries. However, this might take longer to complete since it can take a while to find a perfect match in the order book.
4. Stop order
The crypto market can be unpredictable since values fluctuate daily. That is why people use predictions as a means to create open orders, and these are called the stop order. This trading order type allows you to buy or sell crypto above or below the market price, which can protect assets from losing their value.
Aside from that, stop orders can turn into a market or limit order, and here is how:
A stop order can turn into a stop-market order when the stop price or predetermined target is reached. When it does, the order will be executed immediately as soon as it finds a match in the order book.
A stop-limit order is a combination of stop and limit orders, protecting you from losses and minimising risks. Moreover, this type of trading order is not executed immediately compared to market orders since it involves two layers of prices. These include the stop or predetermined price and the limit price, which indicates the high and low prices the traders are willing to pay.
5. Take profit order
In this order, the trader will benefit from the trade because they can specify a price that’s above the purchase value, also known as security. With the security or increase in price, the order will remain in the market and will only open as soon as the crypto reaches the limit.
Why you need to understand trading orders
With the number of trading order types available, you can use these as tools to make the most of your trading experience and have successful transactions. Now that you know the different types, you have enough options to see which one will suit you best. Using the correct trading order type can give you the crypto you desire. Aside from that, trading orders are here to teach you how to strategically protect yourself from losses.
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