Understanding Market, Limit, and Stop Orders For Cryptocurrencies like Bitcoin on Exchanges Like BitRoyal
Market, cap, and stop orders are the three basic types of trades you’ll do with cryptocurrency. We describe every single one using simple words.
The Basics of Market, Limit, and Stop Orders in Cryptocurrency Trading
At the present stock price, a trading order seeks to buy/sell. It buys or sells “right now.” All it does is purchase or sell available maximum orders currently sitting on the “slippage.”(Slippage is when you get a slightly higher price with a buy market order or a slightly lower price with a sell market order if you don’t have enough quotas to fill the market order at a given price). Slippage can be significant in certain very uncertain times. As a rule of thumb, you should be charged a market order rate. You may set up a sale or buy a platform
A limit order puts an order on the order book in the expectation that it will be filled out by business order from someone else. A sale-limit order is called an “ask” and a buy-limit order is called a “bid.” A limit order will “fill” as business orders buy or sell in order-limit. Filled out the “last” order is the selling price. Aside from the exact structure of exchanges, the basic principle here is that someone else places a purchase order and that buying or selling on the purchase fills your order cap. Limit orders are not subject to slippage and often have rates that are smaller than business commands. You can set a buy cap or sale cap.
If a certain price requirement is met, a stop command positions a market order. And it functions as a cap order, in that it goes on the books, but it operates like a market order until it hits the price (as a rule of thumb, some stops use a cap). Therefore, typical stop orders are subject to the same charges as market orders and are subject to slippage. You can either set a stop-sale or buy. Often known as a “stop-loss” is a stop-sale order. In some situations, you can even set a “trailing stop” which increases the stop price as the asset price increases.
With that protected, it’s possible people would want to ask what order they should use. The truth is, the best sort of order depends on the present situation and your priorities. However, since it is enticing to get your precise price to buy/sell and avoid fees, it can be clever to try to use limit orders primarily (especially for exchanges that give lower limits to encourage liquidity.)
The Basic of the Order Book, Fees, and Maker/Taker
The idea of an exchange order books: An exchange (such as BitRoyal Exchange) allows you to swap coins with other users. Essentially everybody places an order book to purchase or sell orders (a list of orders issued for trading “pairs” such as BTC / USD, LTC / ETH, BTC / ETH, etc.). Orders are put on the books by issuing limit orders, and the books fill limit orders on the business orders. Those who take liquidity (create market orders) are called “takers” and those who do liquidity (let limit orders sit on the books) are called “makers.”
TIP: Various exchanges use different names. Not all stop commands are called stop orders, not all exchanges use the marker and taker words, etc. And keep an eye out for different names on specific mechanics. Market and Cap are common words, some of those are not.
Market, Limit, and Stop Orders in Detail
What is mean by the market? A market order is the simplest transaction to do, but it requires additional costs as a transaction-off (for example, see maker vs. taker fees again). When buying or selling via a market order, you can buy or sell cryptocurrency at the market price plus an immediate fee, as necessary. You are paired by the platform that you transact on with one or more buyers and sellers before your order is fulfilled at or near the current market price; you buy/sell limit orders. If the market is unpredictable this can backfire. You can end up buying or selling at a price that is lower or higher than expected, but you can usually buy and sell at or close to the market price when the market is active and steady.
TIP: Business orders at many levels can be partly “packed out.” ADVICE: Market orders are the best when there are a lot of buyers and sellers and there is little or no spread (that means little to no difference between offers and requests). This helps to ensure you are buying/selling at or near the market level. Meanwhile, if the price goes up or down fast, one will want to use a market order because it can be virtually impossible to get small orders off these days. Often having a market buy or sell in during a bull run or crash is worth the slippage, but usually, it’s easier to plan and avoid being in this situation. The bottom line here is that trading orders in the cryptocurrency industry need some extra considerations because of the small volume of certain exchanges (low volume= higher chance of slippage).
Which is a limit order? In most situations, a limit order is the smartest trade to do, as it is not subject to “slippage” (you can specify your price). When you buy/sell at a price cap, you set the price at which you wish to buy/sell. If a buyer/seller wants your coins the order is executed. As with a market order, you’re not automatically going to get the exact price you expected. With that said, you’ll often get a price above your cap (when you sell) or below (when you buy). Or put it another way, cap orders are not subject or slippage to restate. You will either get a great deal, or you will get the deal that you have asked for. The risk with limit orders is that you may skip an opportunity to complete your order if you are trying to make money, and you set the limit too high/low.
TIP: You must set your buy-limit below the market price and your sell-limit above the market price. Otherwise, it’s simply a business order (as you’ve already hit your limit). ADVICE: Wherever possible, use limit commands (which would be most of the time). Set the price you want to buy/sell at and then walk away. When you handle the orders to limit correctly, you won’t have to do anything else with trading. A good technique tires the limitations you have. For instance, if you bought X-coin at $275 and want to sell at $300, set selling between $290 –$310 at intervals (if they all fill the average is $300, if not, then at least you get some selling off). TIP: You can trade in bots. There are a chance and a learning curve, but they can be useful to put tiered limit orders and prevent stops. TIP: Usually you can choose between fill-or-kill (either fill the entire order or none of it) or partial fill-out (which will fill only part of the order if that is all you can fill in). The partial filling is always the best choice, but not all exchanges give you the option and depend on your goals for the best choice.
What is a stop order? A stop order (a buy-stop or stop-loss) is to trigger a market order at (to cover losses or take advantage of a run-up) when you select a price higher for sale, or lower for purchasing. Stops are a smart way to handle losses or make sure you get buy-in, but they bear certain risks as well. The danger emerges from the fact that the market is sometimes competitive, and small volumes are often present. Have you ever heard of the time Ether went for a moment to tens of cents from something like three hundred? People sold automatically for that price because they put orders for the stop sale. That’s because when you hit the stop price, stop selling orders trigger a market order. This means stop orders will experience “slippage” as with market orders, where you buy high or sell low without meaning to. When you and everybody else on earth are putting an end to the magic price proposed by popular-crypto-magazine X… that means that everyone and their mother are going to set up a market order to sell or purchase at once. That is not to say that you shouldn’t set a stop command; in most situations, you should. It’s just to say that you should be vigilant when setting stop orders and think about stuff like trading volume.
ADVICE: Place a sell stop order at the lowest price (as an exit strategy) you want to sell at. Multiple stops can also be set to capture different rates. Alternatively, if you want to buy when the price breaks out of its X-day moving average, set a buy stop order (people typically don’t do that, but there are times and places for it).
TIP: Trading pairs may be used to prevent using stops (though this only works when one coin goes down or up compared to another). For eg, what you are doing is setting Ether to sell to Bitcoin if Bitcoin goes down or Ether goes up, and Ether to Bitcoin if Bitcoin goes down or Ether gets up. You secure your coins this way without ever going to the USD.
The winner: for any form of order (even the odd stop buy order) there is a time and place. You’ll also want, for example, to position sell-stop orders as a contingency plan (though ideally, you don’t want them to trigger). Similarly, given the fees and slippage risks, you’ll still want to do a business order. In general, however, limit orders should be your bread and butter because of their reduced fees and lack of slippage (especially if you buy/sell something with a low trading volume or a volatile price). Simply put, there is a time and place for each form of order, but generally, if you can choose, a limit order is the best and cheapest option for several exchanges, this is especially true for BitRoyal Exchange because of the maker/taker fees).
TIP: This page covers the absolute basics of exchange-placing requests. If you’re into margin trading or trying to play with advanced options, there’s much more to know. We will in the future be developing sections on these other aspects of an exchange. These basics are for now everything you need to learn to trade.