Common Order Types in Cryptocurrency Trading
Like in general stock trading, you can set a variety of different orders when trading cryptocurrency. Different orders allow traders to trade cryptocurrencies either manually, semi-automatically or automatically under different market conditions and with lesser efforts.
Additionally, you might be interested in knowing the different types of orders because different crypto exchanges, broker and trading platforms have different requirements and fee structures that sometimes depend on order types.
Some crypto exchanges, for instance, do not charge limit orders at all when placed by makers or that these order types are priced lower than market orders. But different exchanges have different fees structures to say. For instance, market makers create liquidity by placing buy/sell limit orders for which they may be charged differently than liquid takers.
Here are common different types of orders in crypto trading.
Market Orders
Market Orders are trading orders placed to sell cryptocurrency at the current market price where the market price is the best available price for that cryptocurrency asset at the time when the order is placed. There are no restrictions/conditional trading restrictions that can be placed on this order type. In these cases, it can either be a sell or buy order.
Market orders ideally are meant to fill (sell to or buy from) limit orders currently sitting on the order books and therefore are subject to slippage in that order may buy cryptocurrency at a slightly higher price or sell at a slightly lower price than expected.
Limit orders
A limit order is defined by a limit price which a seller or buyer sets above or below current market price and then has his or her buy/sell order carried out at that limit price or above/below that limit. The order is carried out when the market reaches that limit, otherwise, it is not carried out. When it is carried out, it is said to be "filled."
Thus, a limit buy order allows a trader to buy a specified amount of crypto when the market price falls to the set limit price (buy either at the limit price or at a lower price below that limit), while a limit sell order allows the trader to sell a specified amount of crypto when the market price rises to the given set limit price above it (sell either at the limit price or at a higher price above the limit).
These types of orders are ideally placed with the hope that some else (market maker) has placed a market order to sell or buy on the other side of the market. It means a buy limit order is filled if there is a seller on the other side to match the demand and a sell limit order is filled if there is a matching buyer. Thus, they are not subject to slippage (cannot be affected by price differences because they must be executed at the specified limit) and may have lower fees than market orders because they are considered not market orders.
Stop orders
Stop orders are carried out when a certain price is reached for the asset on the order books. It functions to, for instance, sell crypto at a given price if the market price falls to reach that given price, and hence stop losses. In that case, it is called a stop sell order or a sell stop order. A buy stop order will thus be set above the current market price, to buy when the market price hits this price. A buy-on-stop order is a type of order that is to be held until the market price rises to the stop price, then to be entered as a market order to buy at the best available price.
This type of order works like a limit order and also goes to the order books but it functions to buy or sell like a market order and therefore may have same fees as a market order and subject to slippage.
In other words, your stop order will get placed on the order book when the market reaches a certain price you specify above or below the market price-- called the target price. It is employed to limit losses on existing positions and as an automatic tool to enter the desired entry position without manually waiting for the market in order to place the order.
Stop Limit Order and Trailing Stop Orders are two types of Stop Orders.
Stop Limit Order
In designing a stop limit order, the cryptocurrency trader will specify a stop price and a limit price. When the market price reaches the stop price, the order turns into a limit order. The order is executed at a price only between the stop price and limit price when there is a matching bid or ask on the order book. The order may not entirely be filled when the market price surpasses the limit price. Therefore, a buy or sell limit price defines the specific price range within which this buy or sell limit order will then be carried out at a maximum or minimum price.
The stop limit order is triggered and added to the order book when the stop price is reached or when the market price = stop price set by the trader, which means it cannot be filled or carried out if the market price does not reach the stop price. Additionally, the order may still remain unfilled after the stop price is reached and the order has been added to the order book if the market price does not move on to reach the limit price.
This type of order is set when a trader wants to buy a cryptocurrency when the market price reaches a certain specified price (the stop price) below the market price, and at the same time, the trader does not want to pay more for the buy order (therefore sets a limit price). Hence the stop price in this case is set below the current market price and the trader expects to buy a given amount of crypto at a lower price than current market price when the market price falls. The limit price is set above the current market price.
A trader may also want to sell crypto when the market price rises to a given price and still set a minimum price beyond which they do not want to sell their assets. In that case, the stop price is set above the current market price and a limit price below the current market price.
Trailing stop orders
A trailing stop order is more flexible than a stop order but works on the basis of a price distance set by the trader. It is carried out/placed/filled when the market price defies that price distance either upwards or downwards. The good thing with this order type is that it always trails the market price unlike the stop order, and can therefore be useful when entering a long trading position in order to protect profits.
A trailing stop sell order is used to protect profit because it is placed as a market sell order when market price falls to beyond the set distance way down. It functions to sell a given amount of crypto when the price is falling. Say for instance when the price falls to reach $15 from the current price is $20 when the specified distance is 5 points or 25%. If the market continues to rise, a trailing stop sell order still stays behind by the specified distance. The trailing stop sell order will still be placed as a market order if the price falls beyond the set distance even from the currently new higher price.That means in the above example, if the market price rose from $20 to $29 instead of falling to $15, but later falls from $29 the trailing stop sell order executes if the market price now falls to $24.
A trailing stop buy order will set a stop price and a distance or stop value above the current market price of the asset in question. The distance is based on a new set price above the market price. If the market price is falling, the trailing stop buy order follows at the specified distance but if the price rises to surpass the set distance, the order is placed as a market buy order to buy at a higher price (the expected trend is decrease in prices and hence the new buy is the "lowest" price possible in relation to the set distance).
Take Profit Orders
Take Profit orders are similar to Stop Orders but allow a trader to close a position or have an order filled when the price moves in a favorable direction above the market price, in order to take profit. These types of orders are used by traders to increase chances of taking a profit where a trader will specify a market or limit order to be executed when the market price reaches that defined trigger price.
A take profit market order is placed when the market price reaches the trigger price while a take profit limit order places a limit order when the market price reaches the trigger price. The trigger price in this case can be specified as the last price, mar price or underlying index price.
An un-triggered take profit order is one which the trigger process has not reached a level to trigger the take profit order while the triggered take profit order has the target price reached already but the order is not yet filled. A filled take profit order is a take profit order that has been filled after the triggered price is reached.
Scaled orders
A scaled order tool will create multiple limit orders across a user-determined price range in order to allow the user/trader to spend less time in designing orders and to instead, concentrate on optimizing their strategy. It is used in algorithm trading. The tool allows a trader to set diverse orders over a defined/given price range. Scale orders allow a trader with a huge amount of assets to sell the stock or cryptocurrency in batches of specified amount at different prices as the price falls or rises by a defined or set increments instead of selling all amount at a single price.
For instance, a trader with 10,000 shares can define a scale order size of 1,000 shares and a scale price increment of $0.01 in order to sell 1,000 shares, every time the market price changes by $0.01.
For instance if the current price is $20.25 while the NBBO is at $20.23 - $20.27 (The National Best Bid and Offer defines the highest someone is willing to pay and the lowest someone is willing to accept for their shares). When the price drops to $20.25 defined as the strategy starting price, 1,000 shares will be sold at that price. The next batch of 1,000 shares will be sold if the price drops by a further $0.01 to $20.24. The next batch sells at a lower price by $0.01 and this continues until the order is canceled or the stock is sold out.
A scaled order can also be placed to sell assets in batches as the price moves up or rises.
Essentially, a scaled order places several limit orders over the given range and these orders are to be carried out as the price incrementally increases or decreases in steps. A buy scale order will place several limit orders to trigger buys (to execute each limit buy order at a different lower price than the previous one) or at incrementally lower prices once the price begins to fall.
A sell scale order places several sell limit buy orders, each to be carried out at an incrementally higher price than the previous one and therefore allows the trader to lock in higher returns. A scale buy order will allow the trader to buy at lower prices incrementally or step-wise as the price falls.
Automated platforms also have the One Cancels Other (OCO order option) option that brings a stop order and a limit order together because it is a pair of orders where one order is automatically canceled after the other executes. The one that is executed is executed when the limit price or the stop price is reached and the other one which is to automatically cancel has not yet been executed.
With scaled orders at Bitfinex, for instance, one is able to do 50 trades on a single order. It can be accessed with any other order type on this exchange.
One Cancels Other (OCO)
Like said above, OCO order comprises of an order pair where one order executes at a given stop price or limit price while the other is canceled unfilled. This order type can be used when a trader wants to place both take profit & stop loss targets at the same time or simultaneously because a limit order allows the trader to sell at a set price above the market price and hence take profit, while the stop price will allow them to stop loss by selling at a defined price below the market price if the market falls below that given set price.
One order can be executed if the price breaks above resistance or below support level while the other is canceled automatically. Bitfinex, Binance, and BitMEX allows are examples of exchanges that allow these types of orders.
Fill or Kill (FOK)
A fill or kill order is immediately filled in entirety or otherwise "killed": no partial fills. The order can be filled from a single market or multiple market orders.
This type of order is used to enter a market position usually instantly at a specific price, and is filled almost instantly in seconds, otherwise the order gets canceled if the specified price is unavailable. The orders last couple of seconds given that they are large and can disrupt stock's price.
Good-till-canceled order (GTC)
A good-till-canceled order is placed to buy or sell cryptocurrency at a specified price and remains effective until it is manually canceled. These order types are used as an alternative to day orders which remain active and expire at the end of the trading day if unfilled. GTC orders can be set to expire after days and months in order to avoid a long-forgotten order suddenly being filled. They can be used to place orders by investors who are not constantly watching prices or trading.
Advanced Order Types
Hidden Order
A Hidden Order is a Limit Order which is not visible to the public on the order books because the trader placing the order does not want to inform the market of their trading intentions.
Depending on the exchange, a trader places this type of order by checking/ticking the "Hidden" box. Users can access this type of order via the Limit Order, Stop Limit Order or Take Profit Limit Order selection.
In exchanges such as Bitmex, it is executed as per a normal Limit Order based on time as well as price priority.
Iceberg Order
Iceberg Order is a Hidden Order but which part of it is displayed on the public order-book. Since savvy traders are able to identify Hidden Orders, some traders use the Iceberg type of order to be indistinguishable from traders continuously refilling their order. It can be accessed by selecting either Limit Order, Stop Limit Order or Take Profit Limit Order and then checking the “Hidden” box and inputting a quantity to display.
It will still fill contracts placed with amounts more than the amount displayed.
Post-Only Order
A Post-Only order specifies that the limit order is to be placed on the order book and not matched with a pre-existing order. These types of orders, which are supported on a variety of exchanges such as HitBTC, BitMex and Bitfinex, ensures the trader does not pay the taker fee (unless when matched with a hidden order) and instead pays the maker fee.
Close on Trigger Orders
This type of trading order is used with most of the Stop and Take Profit Order by selecting or clicking the “Close On Trigger” box. It is treated as "high priority" order and if margin is not present in the order book to execute it, it will try to amend down or cancel other open orders in the same symbol. It can only be used to reduce a position and will cancel automatically if it would increase it. This type of order is used in case of market reversals.
Bracket Orders
Bracket orders are three-component conditional orders that are comprised of a main order (buy or sell order), a stop-loss order, and a take profit order. The stop loss and take profit orders are the brackets in this case.
A Bracket Order is therefore used to take profits when the market price soars to a give target price and to stop loss by selling at a specified minimum target below which the market price should not fall before the assets are sold.
A sell order, in this case, consists of a high-side sell limit order to sell at a given limit price above market price and hence take profits, and a low-side sell stop order to stop loss if the price falls below the current market price. A buy order in this case will comprise of a high-side buy stop order beyond which assets should not be bought, and a low side buy, limit order to buy at a lower price than the market price when the asset's overall price is falling.
In this case, a limit buy order buys at a certain limit price below the market price if the market price falls and hence take advantage of falling prices. On the other hand, the stop sell order will sell at a limit price below the market price to stop loss if the market price is falling. The limit sell order sells at a specified price higher than market price in order to take a profit.
