Traders use different order types for a myriad of reasons, especially in crypto trading where volatility is very much present. These order types can enhance one’s trading and take it to the next level, depending on the risk profile, strategy and duration of the trader’s campaign. 

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Order types can also help traders to execute at a time and price that is different from current market conditions and be used to mitigate risk.

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This is taken to the nice level in algorithmic trading where automated systems can be likened to a series of orders designed to be profitable over the long run. 

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And with the advent of some crypto exchanges offering automated trading and bot systems, traders would be able to tap on these platforms to give their trading an added edge over more run-off-the-mill shops. 

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Now let us look at some of the common order types in the industry.

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Market Orders

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This order type executes the trade at the best available price in the market and is done instantaneously as long as liquidity is available. The most basic and fundamental order type. However, it is prone to “slippage” where large and multiple orders can suffer from lapses in execution due to many parties being involved in the transaction.

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Slippage can be observed when trading penny stocks whereby due to the low prices, large orders are common, but because liquidity is sparse, sometimes execution can take minutes. Larger fees will also be incurred as well as the risk of changing prices resulting in losses.

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Limit Orders

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This sends an instruction for the order to be executed at a specific price that the trader wants. It is commonly used by “sniper” and supply-and-demand traders. However, execution is not guaranteed due to market conditions, especially in crypto where volatility is very real. Hence, traders would be wise to set some leeway when setting price and target orders. Traders who use limit orders are considered “makers” and charged the maker fee because they make the books and inject liquidity into the market. Likewise, traders who use market orders are considered “takers” as they take liquidity away from the order books.

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Stop Orders

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This order is slightly different from a limit order in that it is only meant to be triggered when the stop price is reached. In other words, the “stop” price is the set price the trader wants. Participants in the market can see limit orders but a stop order is invisible until it is triggered.

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Stop orders can be market or limit orders and are more complex to the novice trader. 

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Stop-Limit Orders

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This order is a combination of a stop order and a limit order. They are often used to secure profits or dam up potential losses.

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They are more flexible compared to a limit order in that it will buy or sell the asset once the stop price is reached and the benefit of allowing a stop price is so that the order will not be fulfilled at the worst price, thus allowing traders to have greater autonomy and ease over their order execution.

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Stop-Loss Orders

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Every trader should use a stop-loss because it is key to risk management and curbs overtrading and revenge trading. This order closes a position when price reaches a specific or “stop” level.

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They are very important especially in the crypto markets where price can move fast in a matter of seconds. Traders would be wise to allocate some margin leeway when using stop orders.

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Additionally, there are some orders that factor in the length of time that order will remain in function before it eventually expires or gets executed. These are very good to use with time sensitive indicators like moving averages.

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Type of “Time in Force” Orders

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“Good-Till-Canceled” aka “GTC”

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This order is placed in the order books and remains valid until it is executed or canceled.

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“Immediate-Or-Cancel” aka “IOC”

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This order is used by traders when they want immediate execution as the name implies. In the event that it is not filled, it will be automatically canceled and removed from the order book. 

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“Fill-Or-Kill” aka “FOK”

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This order will only be executed if the entire amount of the position can be matched. There are no partial fills here and if this does not happen, then the order will be canceled entirely.

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What was written is just a small primer on the different order types and as one progresses on their trading journey, they will discover more orders along with tools like indicators and bots that can help them discover more about their trading and what works.

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Written by Sean Lai

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