In brief
When you trade stocks or cryptocurrencies, you interact with the market by placing trade orders:
A Market order is an order to buy or sell immediately (at the current market price).
A limit order is a buy or sell order that is executed when the price reaches a previously selected mark
In short, these are orders that help you trade in the market. Of course, each of these two types has different variations to solve different problems, depending on how you want to trade. Want to learn more? Please read the entire article.
Introduce
Have you registered an account at an exchange, and are wondering what all these buttons mean? Have you just re-watched the movie Wall Street, and are trying to understand how the stock market works?
In this article, we will analyze trading orders - orders you send to the exchange that help buy and sell assets quickly. As we have reviewed, there are two main types of trading orders: Limit Orders and Market Orders. However, these are just the simplest ways to describe these two types of orders.
Now, let's learn more interesting information.
Market orders and Limit orders
A Market order is an order that you expect to be executed immediately. Basically, this command can be understood as at the current price, execute x. For example, if you are using Binance, you want to buy 3 BTC, and the Bitcoin price is at 15,000 USD. You are very willing to spend 45,000 USD at that time to buy cryptocurrency and do not need to wait for the price to lower, so you can immediately place a buy order on Market.
So who will sell those cryptocurrencies to you? We will look at the order book to know that. This is where the exchange stores a long list of Limit orders, which are orders that are essentially not executed immediately by the exchange. Or it can be understood that this order is executed on the condition at price y, executing action x.
Using this same example, another trader could have placed an order to sell 3 BTC at a price of $15,000 each with the previous exchange. Therefore, when you place a Market order, the floor will automatically search and connect based on existing orders on the order book.
In fact, you did not create an order โ instead, you filled an existing order, and removed it from the order book. That's why in this case you are called a taker, because you took away part of the exchange's liquidity. The remaining trader is also often called a marker (market maker), because they add liquidity to the market. Essentially, you will enjoy a lower fee if you are a maker, because you are providing a benefit to the exchange.
The relationship between these two players can be explored further in the article What Is Maker & Taker?. Read on if you want to gain more insight into how exchanges work.
Things you need to know about Market orders
Basically, Market orders are buy and sell orders. You manipulate the exchange to get trades at the best possible price. Please note that the best price is not always the one displayed โ it depends on the order book, so you may end up with a slightly different price.
Market orders are suitable for transactions that take place immediately (or almost instantly). That's something to remember. Fees incurred due to slippage and trade execution mean that the same trade would likely be cheaper if done with a Limit order.
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Popular order types
The simplest and most common orders commonly used are Market buy orders, Market sell orders, Limit buy orders, Limit sell orders. If you are not yet familiar with these orders, you will find yourself with a bit of limited trading experience. On the contrary, mastering these orders can help you gain an edge in market conditions, whether with long-term or short-term setups.
Stop-limit order
Stop-limit order is a good tool to help you limit losses in trading. This order allows you to set a stop price and a limit price. If BTC is trading at $10,000 and you set up a stop limit order at a stop price of $9,900 and a limit price of $9,895. A limit order at $9,985 will then be placed when the price drops to $10.
Note, orders can only be placed after reaching the stop price. There is still a risk of the price not recovering, in which case you have no protection if the price continues to fall below $9,985.
OCO order (one order cancels the remaining orders)
Cancellation of remaining orders (OCO) is a tool that allows you to combine two conditional orders. As soon as one order is activated, the other is canceled. If we take BTC at a price of 10,000 USD as an example, you can use an OCO order to buy Bitcoin when the price reaches 9,900 USD or sell when the price rises to 11,000 USD. One of these two commands will be executed first, the other command will be automatically canceled.
Effective time?
Another aspect you need to understand when talking about orders is the validity period. This is a parameter that you specify when opening a trade, stipulating the expiry conditions of that trade.
Valid until canceled (GTC)
Good until canceled (GTC) is an instruction stating that a trade must be kept open until it is filled or manually canceled. Essentially, cryptocurrency trading platforms have this property by default.
In the stock market, a common alternative is to close the order at the end of the trading day. However, because the cryptocurrency market operates 24/7, GTC is more popular.
Now or cancel (IOC)
The immediate or cancelable nature (IOC) stipulates that any part of an order that is not executed immediately must be canceled. Let's say, place a buy order for 10 BTC at $10,000, but you can only receive 5 BTC at that strike price. In that case, you will buy those 5 BTC and the rest of the order will be closed.
Fill or Kill (FOK)
Take or kill (FOK) orders are executed immediately, or they are canceled. If your order tells the exchange to buy 10 BTC at $10,000 it will not partially fill. If the entire 10 BTC order is not immediately available at that price, the order will be cancelled.
summary
Mastering order types is crucial to successful trading. Whether you want to use stop orders to limit potential losses or OCO orders to plan for different outcomes simultaneously, understanding and knowing how to use the trading tools available is essential .
