Understanding Types of Crypto Orders: A Beginner’s Guide

To trade cryptocurrencies well, you need to know more than just when to buy and sell. You also need to know about the different types of crypto orders and how to use them. Picking the right crypto order type can mean the difference between a good trade and a missed chance, whether you want to reduce risk, automate your trading, or use complex strategies.

Order types are the most basic building parts of trading. They tell exchanges how you want your trades to be accomplished. Each type of order in a trader's toolbox is useful for a different task. There are simple crypto orders that go through right away and more complex ones that are executed only when certain market conditions are met.

In this guide, we’ll talk about all of the different types of orders that can be used in cryptocurrency trading. We'll cover what each type means, give you some real-life examples, and look at the situations where each crypto order type really shines. By the end, you'll have a clearer understanding of how different crypto orders types work and how they may support your trading decisions and risk management strategies.

1. What Is a Crypto Order?

Crypto exchanges, such as Freedx and others, match buy and sell orders between millions of users to execute them. For each cryptocurrency available on an exchange, there is an order book that shows buy orders (or "bids," in green) and sell orders (sometimes known as "offers" or "asks," in red).

An order book is essentially a list of current buy orders ("bids") and sell orders ("asks") for a particular asset. Order books reveal not only the price buyers and sellers are prepared to pay, but also the number of discrete units (such as tokens) they want to buy or sell at that price.

When you tell an exchange how you want to buy or sell a coin, that's called a crypto order. This is your official request to join the market under certain terms that you specify. You can set terms for each crypto order execution, such as whether you want to buy Bitcoin right away at the current price or set up a purchase that will only happen when certain market conditions are met.

When you put in an order, you tell the exchange three main things:

• The cryptocurrency you want to trade
• Whether you want to buy or sell
• The conditions in which you want the deal to go through

Orders allow you to:

• Control the price at which you trade.
• Minimize potential losses.
• Automate your trading strategy.

2. Common Types of Crypto Orders

Trading different types of crypto orders gives you more control over your market participation. You can control the prices at which you trade, minimize potential losses and automate your trading strategy.

Let’s look at the main types of crypto order, how and when to use them.

Market Orders

A market order lets you buy and sell crypto at the current market price. When you place an order to buy or sell crypto, the trade goes through right away. This kind of sale is carried out right away, as long as the exchange has enough cash on hand.

Based on the bid and ask range on the order book, when you place a market order, you get the best price for the cryptocurrency. In this case, if you put in a market order for 1 ETH at 2000 USD, it is filled right away.

This strategy works best in situations with a lot of liquidity, where a lot of trades happen and the price spread is small. It is perfect for a quick entry or exit when you need to act quickly on market changes or major news.

Pros:

• Guaranteed execution
• Simple to use

Cons:

• May lead to slippage in volatile markets

Limit Orders

To buy or sell a crypto product at a certain price, you need to use a limit order. If the price of an asset hits the limit order price set by the trader, the order is filled. This is different from a market order.

For example, if you want to buy Bitcoin at $79,000, all you have to do is set the limit order with that amount and price. Limit orders let you pick the price at which the trade goes through. This way, you can make sure that you only buy or sell at prices that you are okay with.

Also, setting a price for buying or selling coins lowers the chance that the market order will slip. When you trade, slippage is the difference between what you thought the price of a deal would be and what it was.

You can use limit orders when you have a specific price in mind that you believe the market will reach. This strategy works well in less volatile markets where prices move more predictably.

Pros:

• Helps you avoid overpaying or underselling
• Ideal for precise trading strategies

Cons:

• No guarantee of execution if the price doesn't reach your limit

Stop Orders

Also known as stop-loss orders, these are intended to minimize your potential losses by automatically initiating a market order when a certain price level is reached. A stop-loss order automatically sells a position if the price falls below a certain level. This helps to mitigate severe losses by lowering the downside risk. To place a stop-loss order, select a precise price level at which you want to exit.

This can be calculated using a proportion of the invested capital, a specific price point, or a predetermined total profit and loss (PnL) sum. This price is often placed below the current market price for long bets and above the current market price for short positions.

Pros:

• Helps manage risks effectively
• Useful in volatile markets

Cons:

• May result in slippage

Stop-Limit Orders

A stop-limit order combines the strengths of a stop order and a limit order. Traders can set a specific price range for a product, which gives them more control over how trades are carried out. Let’s take a look at how stop limit order works in crypto trading.

Stop price: the price at which the stop-limit order is filled. The stop-limit order changes to a limit order when the market hits this price.

Limit Price: The stop-limit order changes into a limit order with a set limit price once the stop price is met. At this price or higher, the trade will only go through.

Pros:

• Offers precise control
• Avoids unwanted execution during rapid price changes

Cons:

• No execution guarantee if the market moves quickly past your limit price

Trailing Stop Orders

A trailing stop order is a type of stop-loss order that automatically adjusts based on the price of an asset. Unlike a standard stop-loss, which is fixed in price, a trailing stop moves with the asset's price, allowing traders to lock in profits as the market moves their way.

For example, if you set a trailing stop order with a 5% trail, the stop price will adjust upward as the asset price rises. If the price declines, the trailing stop remains at the greatest price reached, minus 5%, allowing you to limit losses. The % trail is known as the 'pullback range'.

When utilized as a Stop Loss, the goal is not to limit your potential gains. Your acceptable risk level remains constant as the price moves in your favor. The trailing stop loss order raises the Stop Loss, allowing you to lock in winnings. This can result in a higher return than a standard static stop loss, particularly if the market trend eventually shifts.
Pros:

• Protects profits while staying in the market
• Dynamic and flexible

Cons:

• Requires active market monitoring

Fill or Kill (FOK) Order

With a fill or kill cryptocurrency order, you can only trade at the designated price; if you don't, the order is cancelled. FOK orders might assist you in reducing any possible loss if the market is erratic and there is a significant likelihood of slippage. When timing and order size are crucial, like when trading big amounts of bitcoin, FOK orders are usually utilized.

If you want to enter or leave a large position fast without leaving any portion of the order open on the market, a FOK order is perfect.

An example of a FOK order would be if you wanted to purchase 12 ETH for $3200 using 1 ETH. If there are only 5 ETH available for $3200 when you place a FOK order, the order will be cancelled because the full quantity cannot be supplied at that price.

One noteworthy feature of the Trailing Stop Loss is its dynamic adjustment to the market price. The Trailing Stop Loss maintains a protective buffer between your set stop price and the current market price by rising in tandem with the market price. Your gains are safeguarded by this process, which guards against future market declines.
Pros:

• Convenient for buying or selling a specific quantity as a single unit
• Useful when partial fills would disrupt your strategy
• When you need precise position sizing

Cons:

• Risk of missed opportunities
• Limited liquidity
• Higher execution costs

3. What Is Time In Force?

When discussing orders, time in force is another crucial term to understand. When you open a trade, you set this parameter, which determines the terms under which the contract will expire.

The term "time in force" describes the circumstances or length of time that a cryptocurrency order is in effect. There are numerous solutions available to traders, each of which meets trading goals and tastes. Typical possibilities for time in force include:

• Good 'Til Cancelled, or GTC, is in effect until it is performed or cancelled.
• IOC (Immediate or Cancel): Completes orders that are partially completed or cancels them right away.
• FOK (Fill or Kill): Must be carried out completely right now or cancelled.
• Day Order: Only valid on the day of the trade.
• IOA (Immediate or Auction): Sends the portion that isn't filled to auction in order to find the best price right away.
  
  To properly match their orders with the intended term and market conditions, traders must have a thorough understanding of time in force options.

4. Choosing the Right Order for Your Strategy

The volatile nature of the cryptocurrency market requires that you have a good understanding of how various market conditions affect your trading decisions. Your order type selection can make the difference between a successful transaction and a missed opportunity or avoidable loss. Every market environment has its own set of obstacles and possibilities, forcing traders to adjust their order tactics accordingly.

Understanding these correlations allows you to choose the best order type for any given market circumstance and increase your trading effectiveness and risk management.

5. Conclusion

Crypto orders are powerful tools that allow you to trade strategically, minimize risks, and capitalize on market opportunities. By understanding the different types of orders and when to use them, you can enhance your trading experience and achieve your investment goals.

Knowing how and when to use the different types of crypto orders is critical to successful trading. Whether you want to use stop orders to restrict the potential for loss or OCO orders to plan for many outcomes at once, you must be aware of the trading tools at your disposal.

At Freedx, we’re committed to supporting crypto literacy by sharing educational content to help users better understand the fundamentals of trading and market mechanics. Explore more educational content on our blog to broaden your understanding of the crypto world.

Disclaimer: This article is intended for educational purposes only and does not constitute financial advice or a recommendation to trade. Cryptocurrency trading involves risk, and users should conduct their own research or seek independent advice before making trading decisions.