Types of Orders in Trading
What is an Order?
An order is provided instruction to a broker/ exchange to buy or sell a security from the market. It can vary in different types with input values and time. An order gives instruction to the exchange or broker for buying or selling the asset.
Let’s run with some basics:
Order Book
Order Book keeps record of all the buy and sell orders on the platform. Users can see the order book and place orders. The users orders are marked with a star or dot on the order book.
What is Ask price?
It’s a lowest price in which sellers are willing to sell a security. This is the first sell order on the order book.
What is Bid price?
It’s a highest price in which buyers are willing to buy a security. This is the first buy order on the order book.
What is spread?
The difference between the Ask price and the Bid price is called the spread. Exchanges with high liquidity have very little spread. Less spread will save your money and gives the opportunity to make a profit with very small moves.
Types of Order (Basic and Conditional Types Orders)
Let’s talk about different types of order.
Market Order:
It’s an order of buy or sell which executes at best available price in the market (Ask price for buy and Bid price for sell).
Example -> Bid price of BTC/USD is at $6000 and Ask price at $6001 and if you want to buy BTC at market price then it will execute at Ask price (i.e., $6001) and in the case of sell, it will execute at the Bid price (i.e., $6000).
Stop Order
This type of order is also referred to as a stop-loss order. When the market reaches that price then your stop order becomes a market order.
Example – When you buy BTC at $6000 then assuming you see a stop order at $5850. When the market reaches that price then your stop order gonna triggered and becomes a market order.
Note: There are different types of stop orders also such as buy stop, sell stop but not available in the cryptocurrency market or in top exchanges, so we haven’t explained them.
Limit Orders:
It’s an order which gives an ability to buy or sell a security at a specified price. There are different types of limit orders explained as follows:
Buy Limit
It’s a limit order which places below the trading price and only executes when the market reaches that price. It uses when you want to buy a security at a lower price.
Example -> When BTC is trading at $6200 and you need to buy BTC at $6000 which appears like a decent help. You can put a buy limit order at $6000 and when the market arrives at that value then your order Gonna filled.
Sell Limit
It’s also a limit order which places above the trading price and only executes when the market reaches that price. It useful when you want to sell/ short sell a security at pullbacks and all.
Example -> When BTC is trading at $9800 and it seems a goo physiological resistance at $10,000. So, you put a sell limit order at $10,000. If the market reaches that price again you order gonna filled.
Stop Limit
Stop limit order is the combination of 2 different orders i.e., stop order and limit order. Here you have to prices to enter stop price and limit price. When the market reached or goes below your stop price then your stop-limit order is converted into a limit order.
Example – When you bought BTC at $6000 then you put your stop order at $6900 and limit price at $6850. So, when the market reaches $6900 then a limit order executed at $6850 and when the market reaches your limit order then it converted into a market order.
Take Profit Limit
It is vice –versa of stop-limit order, here also you have to give a take profit price and limit price. When the market reaches your take profit price then executes your limit order at your given price and once limit order hits then it becomes a market order.
Example – Bought BTC at $6000 and take profit level at $6600 and limit price at $6500. As soon as the price reaches your take profit it set a limit order at $6500 and when limit order reaches then converted into a market order. It only works when the trade is moving in your favorable condition.
Trailing Stop
A trailing stop is a stop order which moves with a defined percentage/ amount with the market rise. This only moves in one direction only designed to protect profit and save from loss.
Example – Executing a buy trade at $6000 and sets a stop loss at $5500 and trailing a stop of $100. When BTC moves to $6100 then your stop loss will automatic shifts from $5500 to $5600 and as the price rise the same amount of increase in stop loss will reflect. As it only shifts in one direction in the case of fall in the market will not affect your stop loss. For most of the traders, it’s better than stop loss because it locks our profit and lowers the loss also in some cases.
Time in Force Orders
Time in force order is an instruction when placing trades that how long that order will remain active or expires.
- GTC (Good-Til-Cancelled):
This type of order remains active either get executed or get canceled by the trader itself.
- FOK (Fill-Or-Kill):
This type of order either fills the trade immediately and completely at once. This order doesn’t allow for partial filling of orders either fills whole order or get canceled implicitly.
- IOC (Immediate-Or-Cancel):
In this also order has to full immediately or get canceled but here partial filling is allowed. When the entire order is not available then partial fulfillment is allowed and then canceled implicitly.
- OCO (One Cancel the Other) :
It offers to place the two trades at the same time. It combines a limit order with a stop order, but the only execution of one order is possible here. As soon as one order fills (fully or partially), another one automatically canceled. In OCO type users can place both buy and sell at once and only one order will execute the other will automatically be canceled by the system.
