Cryptocurrency Trading Basics for Beginners: A Guide to Different Crypto Order Types
In the world of financial technology today, trading cryptocurrencies has to be one of the most lucrative activities. Owing to the high volatility of cryptos and how speculative they can be, it's important to arm yourself with the right knowledge. For instance, as a newbie in the Crypto space, you should know what trading tools are and the different order types.
Read more about the beginner's guide to crypto trading here
There are three order types in crypto trading: stop, market, and limit orders. Regardless of how experienced you are in Crypto trading, you should understand the different order types. Thankfully, this article discusses the different order types while exploring their advantages and disadvantages.
Market Order
A command to sell or buy an asset at the current market price is a market order. A market order is the most basic trading order type. Also, in a crypto trading platform, when placing a trade by yourself, click on the sell or buy icon fulfil the order instantly.
Basically, market orders are used when a trader wants to sell or buy assets immediately. One reason for market orders is that traders don't want to miss a profitable trade. Market orders are ideal for assets that are frequently traded, like common or well-established cryptos. Also, you can use market orders for exchange-traded funds, otherwise known as ETFs.
Pros
- A market order is quite easy to use, especially for cryptocurrencies with a large market capitalization
- Market orders allow you to trade immediately.
- Market orders allow easy selling or buying of an asset in full quantity.
Cons
- High slippage
- It doesn't allow you to plan your trade ahead
Limit Orders
Limit orders are instructions to sell or buy assets at a stipulated price or a better price. Sell-limit orders are executed at a specific price or a higher price. While buy-limit orders are transacted at a lower or set price. However, not every limit order is sure to execute as limit orders are only executed when the asset's market price gets to the limit price.
Pros
- Limit orders offer traders more flexibility
- They help to minimize traders' risks
- They are ideal for traders not actively trading or in a rush
Cons
- Limit orders don't guarantee execution
- Orders are executed on a first-come-first-serve basis and the price
Stop Orders
A stop order allows a trader to sell or purchase crypto assets when the market price has reached a specific value; the value is also known as the stop price. Stop orders protect traders from limit loss, help intimate new trading positions, and protect profit. However, like limit orders, stop orders aren't guaranteed to execute, although the price of the crypto target is met.
Furthermore, stop orders can either be limit or market orders. Stop-limit orders are a combination of stop and limit orders, while stop-market orders are based on the asset getting to the stop price before it's executed.
Pros
- Stop orders allow you to manage your trading positions without constantly monitoring the market.
- They prevent emotional influence while trading.
Cons
- Stop orders don't guarantee execution.
- They can result in potential losses, especially for temporary market movement.
- High slippage.
To Wrap It Up
The three types of orders in crypto trading are fairly easy to master. With adequate practice, you can start trading like a pro and make huge profits. However, it's important to remember that the crypto market is unpredictable, and cryptos are highly volatile. You can begin trading with a small amount of money to get a hang of the market before investing huge sums.
In this article, we walk you through the basics of crypto trading: the different order types. We also highlight their pros and cons to enable you to decide on which trading order is most suitable for you.