Crypto Orders - Market Orders, Stop Limit Orders, Limit Orders

A trade order refers to an agreement to sell or purchase a particular crypto asset at a certain price range or price. Crypto investors can sell or buy several cryptos via three basic trading orders — limit, market, and stop-limit orders. Thus every crypto enthusiast needs to understand these basic trading order types. 

Let’s have a look at them.

Market Orders

Market orders are the simplest type of trade orders. Usually, traders place these if they are willing to ensure that a trade is executed. It simply refers to an order a trader places to sell or purchase any asset such as Bitcoin immediately at its current price. 

An example of market order: Mr X is looking forward to selling 0.75 Bitcoin (BTC) at this moment or as soon as possible.

A market order is supposed to be executed instantly or, at least, as close to instant execution as possible. When a particular market transaction has occurred and the order is completed, traders refer to it as “the order has been filled”. It’s worth noting that a market order will be instantly filled always, or it will not be executed.

Advantages of a market order

Some major advantages of market orders are their efficiency, immediacy, simplicity, and ability to fill (in most cases). 

Disadvantages of a market order

Placing a market order on an exchange comes with the disadvantage that the concerned individual agrees that the exchange fills the order at the best possible price for that timeframe. This again gives rise to another limitation: the more price-sensitive traders lose out, and those agreeing to increased prices get their market orders filled first.

Limit Order

A limit order is an order to sell or purchase an asset at a particular price. The purpose of placing these orders is to limit price risks.

An example of a limit order: Suppose the price for BTC/EUR is currently EUR 9000 and Mr X places a limit buy order for a limit price of EUR 8500. In this case, the order is supposed to execute at EUR 8500 when there comes a matching sell order at this price or better.

It is imperative to note that if a price higher than the current price is set for buys or is kept lower for sells, it may lead to an immediate fill. This is because a price better than the specified limit price is available.

Also, it’s worth noting that timing is an essential parameter in placing limit orders. All orders placed on an exchange in an order book are time-stamped. The trades placed first take precedence over the orders accepted later. This holds even if they bear the same limit price as an order placed later.

Advantages of a limit order

One of the biggest advantages of a limit order is that a trader can execute a trade when the price is appropriate for them. As a trader, you can pre-determine the rate by when you are willing to sell or purchase the crypto. 

Besides these, traders can determine a suitable time to sell or purchase with limited orders. Also, you can specify the amount even when a cryptocurrency has not touched the mark. A limit order also proves to be beneficial when you are trading larger volumes. Further, you can skip constant checking of cryptocurrency prices. That’s because the prices you are comfortable with are already set.

Disadvantages of a limit order

A limit order comes with the disadvantage that filling the order will not take place if an interested seller or buyer does not meet the limit price in the specified period.

What Is A Stop Limit Order?

Stop limit order refers to an advanced order type which is not executed in an instant. This is because the trader limits the price at which the order's execution will occur. 

Thus, two prices are involved in a stop-limit order - the limit price and stop price. The stop price refers to the one that will convert the order to a sell or buy order. On the other hand, the limit price is the minimum price for which a trader wants to sell or the maximum price for which he is willing to buy. 

Firstly, a stop limit order is “Active”. A stop order gets triggered when a particular price (the stop price) for selling or buying an asset is crossed or hit. When triggered, an order is put into the order book with the limit price only. After that, it becomes visible to all.

An example of a stop limit order: Suppose an order is placed to sell 1 BTC at EUR 8900 (limit price) in the order book if Bitcoin’s price crosses or hits EUR 9000 (the stop price).

This order type is also called stop-limit order because traders seek to control the risk involved in Bitcoin’s high volatility. In the above case, the concerned trader is willing to sell before Bitcoin’s price drops below EUR 8900. After the stop price is triggered, filling the order will take place immediately if the order books have sufficient liquidity. 

Advantages of a stop-limit order

A stop-limit order enables a trader like you to automate the trading procedure and utilise time more efficiently. With that, you need not follow the market every time and instead use that time for something else.

These orders are a vital risk management tool to minimise losses when things do not go as per plan. As these orders take place automatically, they react much quicker to market condition changes than to what can be done manually.

Disadvantages of a stop-limit order

A stop-limit order comes with the disadvantage that it does not guarantee total protection against losses. For instance, if sharp price movements occur, particularly when trading low-liquid assets, the execution of a stop-limit order may not occur at all because of slippage.

Bottom line

There are other crypto trading order types besides the ones illustrated above. These three form the foundation for the other trading order types. Knowing the details mentioned about these three order types is of utmost importance, especially for those starting their crypto trading journey.