An order – what is it on a cryptocurrency exchange and what types are there?
A trader's activity consists of daily transactions. They buy and sell cryptocurrency assets by placing orders in the order book at a specific price. This procedure is directly related to an order, which is a fundamental concept. Every trader should know what an order is and what types of orders are encountered on cryptocurrency exchanges.
Understanding Exchange Orders
Order is a trader's request to buy or sell a specific asset, placed in the exchange's order book. All exchange transactions are carried out through orders. A modern order is a technical command that describes the type of action, the amount, volume, and some limitations.
When the cryptocurrency reaches the desired price, the order is executed, which is considered the closing of an exchange transaction. The trading terminal only requires the trader to fill in a few fields, and the exchange takes care of the rest since cryptocurrency trading is highly automated.
Market Orders and their Types
A market order is a trader's request to buy or sell cryptocurrency at the current market price. The essence of such an order is the current price because it is executed immediately. The trader opens the order book and evaluates the current buying and selling prices of the asset, selects the quantity of coins to buy or sell, places the order, and the transaction is immediately executed.
This type of order is suitable for instant transactions; however, the commission charged by the exchange should be taken into account.
Limit Orders for Buying and Selling
Similar orders have the same subtypes as market orders, but their mechanism of operation differs. A limit order implies a delayed transaction.
The trader specifies the anticipated price of the asset, which will only be reached after a certain period of time. The order book consists precisely of limit orders since they are executed in the future.
Stop-Loss Orders
Stop-loss orders allow selling an asset when the price reaches a specific level, but they are not entered into the order book.
These orders are activated only when a certain price threshold is reached. Stop-loss orders serve as a protection against losses. Take-profit orders work on a similar principle.
OCO Orders
Such orders are a tool for more advanced traders. This type combines a stop-loss or limit order. If one order is triggered, the other is instantly canceled.
For a better understanding, let's provide an example: Bitcoin is trading at $40,000. An OCO order will allow you to buy coins when the price reaches $39,000 or sell the asset at $41,000. When either price is reached, the order is executed, and the other one is automatically canceled.