What are the different order types, and how to place them

Different order types

Traditionally, capital markets referred to stock and bond markets. In recent years, crypto has gained traction among investors, underlining its importance as an emerging asset class. Under this broad umbrella, exchanges perform the vital function of providing a platform for buyers and sellers. Orders are the means by which traders interact with the crypto exchange. Different orders mean different things to the market and traders. Therefore, it makes sense to understand the different trading order types and how to use them to your advantage. Let’s dig in.

What is a stock trade order?

A stock trade order is a broad term used to describe the various types of instructions you can give to your exchange. These could be buy or sell orders, depending on what you’re in the market for. Traders might use one of these orders exclusively or use them in a combination of two or more to maximize returns.

Types of stock trade orders

There are various trading order types. Let us understand what they are.

Instant order

An instant order comes in handy when you have some money to invest in the market but are unsure how many coins you want to buy. An instant order works best when the exact number of coins you’re getting for your buck is not your immediate priority. SIP investors who focus on big-picture cost-averaging rather than volatile market movements prefer instant orders.

Of course, instant orders can also be used to sell. For instance, you have some bitcoin you want to get rid of but don’t really care how much you get in return as long as it’s somewhere near what the market is offering.

Market order

Put simply, market order helps you get exactly what the market is offering at that instant— taking the market as it’s worth.

What’s the difference between a market and instant order?

The difference depends on your priorities, between what’s variable and what’s pretty much fixed. If you refer back to instant order, you’ll see that they’re useful to people who don’t care how much they get, but are pretty strict about how much they want to put in. Thus, they’re variable in crypto but fixed in fiat (or the other way around if they’re selling). Conversely, market orders work the opposite way.

Market orders are for people who want a certain number of coins but don’t care how much money they put in. Traders who prefer this type put in the number of coins they want, and given that they have sufficient funds at market price, their order is filled automatically by the exchange. These trades also occur at market price.

Limit order

Use limit orders when you want more control over what you get for your fiat or vice versa. As traders, you can’t always accept what the market gives you at any instant. If you have some time on your hands, you could get a much better price for your fiat or crypto with a Limit order.

A limit order allows you to specify how much you want to spend to buy a certain amount of coin (s) or how little you’re willing to accept for your coins when selling. Essentially, you set a limit. Obviously, to complete a Limit order, you must either enter the number of coins you want to buy (or sell) and at what price.

For instance, you have $50,000 to invest in Bitcoin. But if you think $17,500 is a bit steep, you can set a limit order for when BTC hits $12,500 per coin. Once you place the order, the exchange scans the order book for sellers and matches you with a seller who’s willing to sell for $12,500. The process can take time if prices are higher and no one’s willing to sell until market prices come down. When this order is executed, the exchange takes your $50,000 and credits BTC worth that amount to your wallet.

Limit orders never execute above the specified price, but could be below that price. For instance, the exchange would never buy you BTC at $13,000, but could do it at $12,000, which is below your maximum price of $12,500 (essentially giving you more BTC per dollar, never less).

Stop order

Stop orders help protect against losses in volatile markets. That’s when you want to set your selling price above or below the current market price.

Suppose you buy 10 BTC at an average of $20,000 apiece. However, you can only afford to take so much loss on your holdings and decide to sell if the price of 1 BTC falls below $19,500. Here, you place a stop order at $19.500.

These orders can also protect you against losses. If you suspect that BTC would drop from $20,000 to $19,000, you could set a Stop at $19,500, as in the previous example. In case prices fall, your BTCs are sold at $19,500, and you’ve neutralized 50% of your losses immediately. If it doesn’t, your coins are safe at $20,000.

Stop-limit order

As the name suggests, this combines both Limit and Stop orders. If ETH currently sits at $2,000 and shows bullish momentum, you might want to buy. However, there’s a catch—you want to invest only when prices exceed $2,200. So, you set a Stop order at $2,100 and a Limit order at $2,200. When the price reaches $2,100, the Stop is hit and the Limit order is activated. Once ETH achieves $2,200, the Order is filled and you will have 1 ETH bought at $2,200 and a Stop order at $2,100.

Trailing stop order

A Trailing Stop helps you not just to stop your losses, but also to lock in some profits. It is usually set at a trailing percentage from the market price. As the market moves, the target also moves according to the preset percentage. However, if the market moves back up, the trail does not move up; it only moves in one direction.

Hence, if you add a 10% trailing Stop order to a position, your profit will be locked in if the price drops 10% from the peak.

Conclusion

Markets are inherently volatile. If you are a trader or investor in crypto, some of the trading order types discussed will help you easily navigate market volatility. Be it the instant order, market order, or somewhat complicated stop-limit order, we have listed them all here.

FAQs

What are the five trading order types?

The five types of orders are Market, Limit, Stop, Stop-Limit, and Trailing Stop orders.

How do you place a stock order?

A stock order can be placed on an exchange depending on how you want to deal with the market. Various order types are available for traders to choose from in all major exchanges.

How does a limit order work?

Suppose you want to buy 2 BTC at $15,000 per BTC, but the market’s hovering around $17,000 right now. You could set a Limit order at $15,000 for 2 BTC by depositing $30,000, which would get executed as soon as the crypto hits that price. This is an example of a limit order.

What are the different order types in crypto market?

Crypto order types: Market (current price), Limit (specific price), Stop (triggers market order), Stop-Limit (triggers limit order), Take-Profit (sells for profit), Trailing Stop (adjusts stop price).

Which order type is best for trading?

Choose order type based on strategy: Market for speed, Limit for price control, Stop for loss management, Take-Profit for profit securing, Trailing Stop for gain protection.

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