TRADING TYPES IN CRYPTOTRADING:
MARKET, LIMIT AND STOP-LIMIT

Cryptocurrency trading inherits the basic principles and mechanics of classic market trading, but it also has a number of fundamental differences.  Basically, the difference between trading digital and traditional assets lies in the speed of changes in their rates: the volatility of cryptocurrencies is much higher than that of securities, government currency and other trading lots.

 

The volatility of the crypto market requires a high speed of decision-making from traders, therefore it is extremely important to conduct technical analysis of currency pairs and choose a strategy of market behavior before starting trading.  The vast majority of digital trading platforms provide their clients with the opportunity to independently choose the type of trade order when entering a position.  Using this opportunity correctly, a trader can significantly increase the efficiency of his trading and secure his assets in the event of unpredictable course behavior.

 

Working with orders in cryptotrading


The main task of a trader is to timely open a trading position to buy an asset at a low price, as well as close an order when selling at a higher price.  There are other trading strategies, but the vast majority of trading is done in this way.

 

The order is actually a trader's application to buy or sell cryptocurrency and is considered the basic way to withdraw personal funds into the trading environment.  Depending on the chosen strategy, the participant of the transaction can either use the standard order instruments, or supplement his application with additional instructions.

 

Opening a trading position most often takes place in several stages, the main of which are:

  • selection of a cryptocurrency pair with the expectation of predicted changes in the rate of the digital coin of interest to the trader;
  • elaboration of a strategy that allows you to understand how long you can be in a position to get the maximum profit;
  • placing an order to buy or sell an asset using transaction control instruments.


For example, a trader expects to buy ETH at a price of 400 USD and assumes that after a certain period of time the coin will rise in price and he will be able to sell it for 500 USD.  If the coin's current value matches his predictions, he enters a long position and buys a certain amount of digital money.  Then the trader waits for the rise in the value of the cryptocurrency and sells it at a higher price, receiving the expected profit, taking into account the commissions of the trading platform.

 

Another scenario is also possible when a trader borrows a certain amount of digital coins, sells them at the current market value, opening a short position (short), then waits for the cryptocurrency rate to fall and gives the borrowed amount with interest, and receives the difference in value as a profit.

 

Depending on the open position, you can choose the most appropriate type of order, which will provide maximum control over the deal, as well as automate some aspects of trading, which is very useful when working with strategies such as scalping and margin trading.

 

Market order


The market order type is considered basic, therefore it is most widely used by novice traders.  Its main characteristics are:

  • instant execution;
  • availability of commission for opening;
  • full control over execution by the trader.


This type of orders allows you to instantly enter the market by buying or selling a digital asset at its optimal current value.  In this case, the commission charged by the exchange from the trader acts as a stabilizing factor.  It allows you to synthetically reduce the volatility of a virtual asset for a short period, and also increases its liquidity.

 

Despite the commission obligations, the use of market orders is quite appropriate when trading a strong bullish trend.  If the trader has a reliable forecast for the further growth of the coin, the instant entry into the position saves valuable time and increases the profitability of the trade.

 

Limit order


Working with limit orders is somewhat more complicated than with market orders.  However, their functionality allows you to reduce the risks of losing assets and more reliably calculate additional profit.  The features of limit orders are:

  • the ability to postpone entry into a position until the rate set by the trader is reached;
  • low commission for execution;
  • a wide range of instructions that a trader can additionally schedule for his trade.


By opening a limit order, the client of the trading platform sets the preferred value of the cryptocurrency, upon reaching which the transaction will be executed.  If the current rate does not correspond to the set value, the order is awaiting execution in the order book, where it is placed immediately after processing.

 

Limit orders are also called “maker orders”.  Unlike “taker” (market) orders, they literally participate in the formation of the asset's price, so trading platforms charge a minimum commission for placing them.

 

Stop Limit Order


A stop limit order is used in exchange transactions that are associated with a high level of risk.  It is characterized by:

  • the ability to additionally set the “stop” coordinate, upon reaching the rate of which a limit order is opened;
  • automatic transaction management according to the parameters set by the trader;
  • the ability to limit the waiting time of the transaction.


Unlike limit orders, stop limits do not enter the order book immediately after processing.  At the first stage, such orders wait for reaching the stop rate set by the trader.  If the cryptocurrency rate is reached, the order goes into the general order book and becomes a limit order, that is, a maker order.

 

Stop limits belong to the general category of stop orders, the use of which in trading allows you to avoid unpredictable losses and work correctly with the main market indicators.  Both stop loss and take profit scenarios are possible for them, therefore stop limits are often used by experienced traders in combination with other types of orders.

 

Choosing an order type for crypto trading


The most effective way to select the type of order for a particular deal is to carefully calculate the trading strategy based on the technical data of the asset.  If a trader at a certain point in time has fixed a powerful uptrend, then the optimal solution may be to open a market order.  In most cases, high performance is achieved by combining orders and conducting several transactions in parallel.

 

The Dex-Trade team has implemented functionality that allows you to place different types of orders. Therefore, go to the site, sign up, subscribe our news in social networks to be the first to know about all the innovations of our exchange.

Published: 2020-09-12