Market, Limit, Stop: Three Cryptocurrency Order Types Explained
Technology has brought in a paradigm shift in the way humans transact these days, from communicating with each other to shopping or even making payments, we heavily rely on digital media. A new payment system has emerged in the last few years that’s gripping people across the globe with its easy, secure nature is cryptocurrency. A name that we were not familiar with 10 years ago, is now experiencing a boom among financial investors. With a lot of people becoming more open to cryptocurrencies, the future of cryptocurrency remains driven in a more favourable direction.
For those who must have heard this word floating around but don’t know what it means, we are here to help you with some useful insights.
What is Cryptocurrency?
Cryptocurrency, also referred to as “crypto” in simple terms, is nothing but a form of digital currency that exists only electronically and is used for paying for services or even buying goods. Cryptocurrency doesn’t rely on the bank for verifying the transactions, rather uses an online public ledger with strong cryptography. It is also referred to as a peer-to-peer system that enables a person to make payments or receive payments from anyone, from any part of the world. They are often compared as casino chips or tokens that need to be exchanged with real currency so that they can be used for buying goods. If you have ever wondered what makes cryptocurrency so popular and appealing, then let us tell you that it works on a technology called a blockchain that’s highly secure.
It is the act of hypothesizing the value of cryptocurrency price movement, and you can buy cryptocurrency if you think its value will rise, or even decide to sell it if you think the value is going to drop. Just like the name indicates, trading is nothing but exchanging assets between a seller and a buyer for the best available rate for that day, and this can also be called a trade order. While placing the cryptocurrency trade, you can choose between three order types – market, limit, and stop.
As mentioned, trade order is either selling or buying assets at a specific rate, and of all the order types market order is the simplest of all. It is associated with the instant buying or selling of cryptocurrencies for the best available rate on that given day. It’s more like a trader placing an order or a command to buy or sell assets like bitcoins immediately based on their current value. This order type is carried out instantly and you can do it yourself online by merely clicking on the buy/sell button which alone is enough to fulfil (execute) the order right away. The market buy order will be executed at the nearest ask price, and the market sell order is generally fulfilled at the nearest bid price. Experts suggest that market orders are suitable for frequently traded, liquid assets, and typically traders use market orders when they promptly want to buy and sell the assets to make some quick profits and cut their losses.
Limit order as the name suggests is all about placing a minimum limit on the price or quantity you set it to in a limited time span. So, your order ticket is executed or fulfilled only when your order price is met or exceeded only, which also means it may not happen immediately, it may take longer depending on your set limit, and in some cases, it may not even be get fulfilled, if it is not marketable in the set period of time specified by you. This sort of trade order is useful when you are not in a rush, and you are not an active trader. Experts suggest that this trade order type is often used by people who want to limit the price risks, because eventually you get your price, if not higher, cutting down the chances of losses incurred. One thing to be mindful about here is that every trade order exchange is time-stamped.
Stop – Loss Order
This is the most advanced and sophisticated trade order type which again doesn’t fulfil instantly. In this the trader is allowed to set the price at which the order should execute and is often referred to as the ‘stop price”. There are two types of stop-loss orders:
1. Stop-Limit Order: This is your regular stop order format, so, when the asset value falls below the specified price set by you, it automatically creates a trigger to enter the order book to sell the asset to avoid further losses. This kind of trigger protects you from the sudden drop in values, and eventual loss.
2. Trailing-Stop Order: This is the modified version of stop-limit order, in this order type instead of specifying the price, you specify the trailing amount in the form of percentage of how much loss you can bear, and it also helps you to lock profits unlike the regular stop-limit order.
Always remember to maintain a strategy for crypto trading along with a diversified portfolio. Before jumping in haste to buy the latest currency, do ample research on origin, historical & current performance, the up & down patterns, and evaluate your risk appetite. We hope these insights on crypto order types help you take your trading to the next level.
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