When trading cryptocurrencies, it is crucial to know about different order types and how to use them. This knowledge can save one’s portfolio as the market momentum turns and ensure one can take profit at an acceptable level. Order types are a vital part of interacting with any market.
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A Plethora Of Cryptocurrency Order Types
Experimenting with any exchange or trading platform – tied to cryptocurrencies or otherwise – will often require users to try different order types. Every single kind of order has tremendous benefits, depending on how one uses them. Especially for novice users, dealing with the different types can save a portfolio from collapsing.
Most users know the two main types: market orders and limit orders.
A market order signals one’s desire to buy or sell an asset at the current market price without delays. Market orders are visible on the order book briefly, as they are often filled within mere seconds.
Limit orders exist to let traders buy or sell an asset at their preferred value. Depending on the current market sentiment, these orders may remain on the platform’s order book for an extended period. In some cases, limit orders can act as “support” or “resistance” levels on an order book.
However, there is a lot more to the different order types. Knowing their specific purposes and utilizing them for one’s benefit can make a world of difference when significant amounts of money are involved.
The “Advanced” Cryptocurrency Order Types
Most exchanges or trading platforms will have a multitude of order types for users to explore.
Perhaps one of the most critical order types in the cryptocurrency world, a stop-loss sets a limit at which one’s investment is sold automatically if the market momentum sours. Having the ability to sell at specific prices can help mitigate portfolio losses.
While a stop-loss order may seem akin to a limit order, there is a crucial difference. An order book will never depict stop-loss orders. It only exists within a user’s account, as the “selling point” may not be triggered. If the predetermined selling price triggers, the stop-loss order will become a regular market order.
Dealing with volatile cryptocurrencies will often expose traders to potential losses. A stop-limit order can be a valuable ally to prevent traders from losing all their money. It is similar to a stop-loss order, but it offers an extra feature. Traders can set a stop price and a limit price that are different from one another.
For example, you buy an asset at $1,000. As a risk-averse trader, you put a stop price at $990 to prevent losses from piling up. However, with a stop-limit order, you can opt to place a limit order at $995 if the price recovers quickly. As such, you can still sell your asset at $990 or higher, further limiting the potential loss.
The downside to this order type is how it will not automatically sell at $990 if the market keeps heading down. If possible, setting a stop-limit and stop-loss order for the same asset is an advisable course of action.
Order Types That Aren’t Always Available
Deciding to trade cryptocurrencies is only the first step along a lengthy path.. Finding the right platform to do so is equally as crucial. When picking an exchange or trading platform, you may want to check if they offer [any of] these “unique” order types.
The OCO order type – or One-cancels-the-other – is an intriguing option to explore. It is a straightforward, yet powerful concept. Traders can set two conditional orders, allowing them to sell at a specific price if the market sours or at a higher price if the market remains bearish.
This is a “set it and forget it” type of order, as it doesn’t require traders to monitor the charts regularly. At the same time, the OCO order will trigger the first condition automatically. If the market turns sour and the price hits the bullish condition order-level later, traders will have sold their assets at a loss.
The IOC order – Immediate or Cancel – is often sued by more experienced traders. If order conditions cannot be met instantly, the IOC condition will nullify the entire order. IOC is a way of handling orders that only fill partially without wasting too much time.
Unlike what the name suggests, this order type has nothing to do with naughty behavior. FOK, or Fill or Kill, is another advanced way of handling current market conditions. This order type is either filled immediately or canceled altogether. With no room for partial order filling with this type, it can prove beneficial for maintaining more aggressive trading strategies.
Good Until Canceled – or GTC – order types are a viable tool for those who prefer a more hands-off approach to trading cryptocurrencies. The instructions are simple: trades remain open until it is executed or canceled by the order. These orders are visible on the order book, and it is the “default” order type on most cryptocurrency trading platforms today.
Judging by the different types outlined above, trading cryptocurrencies is a bit more complicated than most people may assume at first. However, these different order types allow for users to minimize losses and maximize their profit potential when used well.