A Complete Guide on Different Types Of Orders in Cryptocurrency Exchanges
Cryptocurrency Trading is a Skill. Actually the smartest skill that no universities / College would teach but we do! The common mistake that most of the traders make is they are stuck in regular trading traits even if the Cryptocurrency Exchange itself offers lots and lots of trading options to provide a rich user experience.
If you are a Crypto Trader looking to enhance your trading skill, then this blog is exclusively for you !
Before getting into the order types, let’s have a look at the most basic concepts of Crypto Market, Market Makers and Market Takers.
Market Maker & Market Taker
Are you a Crypto holder? Then, You are probably the market maker or market taker based upon how you buy or sell your cryptocurrency.
In simple terms,
Market Maker - Creates Liquidity
Market Taker - Instantly buy / sell assets with the help of Liquidity
Explore more about Liquidity: Importance of Liquidity in a Cryptocurrency Exchange
If the trader wants to buy/sell an asset for a fixed price in a future, he is making a new order in a order book, then the trader is the market maker
Alice wants to sell 2 BTC for 50K USD, here she defines the precise price for her order which also creates Liquidity for the market.This order closes when the buy order matches with it.
Most of the market makers are bulk traders or institutions
Market Takers are those who remove liquidity and the orders which closes the trades in the order book.
i.e people who wants to buy / sell assets instantly in the market value without any time delay are called market takers
Different Types of Orders in a Cryptocurrency Exchange.
Generally order types are the instructions given to the cryptocurrency exchange, to perform buy/sell action in a certain way
It is broadly classified as
- Market Order
- Limit Order
Market Order & Limit order
Market Order is the instruction to buy/sell assets instantly in the market value, These orders are executed by the market maker. Limit order is the instruction given to the exchange to wait for some time until the described value hits.
A limit order is always closed by market order
Alice wants to sell 1 BTC for 30k USD and placed a limit order, on the other hand, zarra was happy about buying 1 BTC for 30K USD in the market price and placed a Market order.
Limit order in the order book matches with the market order and the order gets closed.
Common Order Types
Stop - Loss Order
Stop - Loss order is designed entirely to protect traders from significant losses. It is a kind of limit order, one can predefine the price of an asset but it will not be added in the order book. The Exchange platform consider it as a market order and convert it as a market order when the defined price value hits
Stop - Limit Order
Stop - Limit Order is the same as the stop loss order but you can define stop price as well as limit price. It lets you set a limit between the range of values. For Instance , one can set a limit order as 9K USD and 9100 USD for 1 USD.
One Cancels the Order (OCO)
It is the kind of tool where one can combine two orders and a trader can execute one among them which is most favourable for the market. then the other order cancelled automatically.
For example, The Price of BTC is 30K USD, one can place both buy order and sell order if the BTC price increases, he uses sell order and if the price decreases, he uses buy order.
Immediate or Cancel (IOC)
It facilitates users to cancel the orders which are not filled. If you order 20 BTC but at the execution price, you only get 10 BTC, the rest of the order would be closed.
Kill or Fill Orders (FOK)
Fill or Kill facilitates to fill the order immediately or cancel it. If a trader orders 20 BTC, If half of the order is filled in a certain time, the entire order would be cancelled.
There are many more different kinds of order types out there in cryptocurrency exchanges, Traders need to think out of the box and make use of some kinds of order types to sustain in the capricious cryptocurrency market. When we dig deep into these kinds of stuff, we will realize the truth that cryptocurrency trading is not a risk but one needs deep analysis.The above lists are not only helpful for traders but also for the young budding entrepreneus who are willing to start their own cryptocurrency exchange.
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