Basic elements of crypto currency trading
The chapter three of A complete guide in Crypto currency trading discussed the basic elements of crypto currency trading. The basic elements are things a cryptocurrencies trader must know.
How to place different order types
An offer to purchase or sell a certain quantity of cryptocurrency assets at a certain price is known as a trading order. When trading in cryptocurrencies, you must communicate with the market by submitting orders. These orders are simple directives to purchase or sell a certain digital asset, such as bitcoin, Ethereum, or another in a specific price range.
On various kinds of crypto trading orders, a cryptocurrency trade toolkit is built. The exchange of various assets between a seller and a buyer might be compared to a crypto deal. As a result, we once referred to a crypto trade order instruction as a way to exchange assets at a defined price, such as bitcoin for any other digital asset like Ethereum or fiat money.
There are various types of orders to choose from. The commonly used orders include:
- Market orders
- Limit orders
- Stop-limit orders
What is a Market Order? Basic elements of crypto currency trading
A market order is a form of cryptocurrency trading order that is automatically placed at the current market pricing for your chosen asset pair. The price is determined by the current rates on the order books when you want to make an order using a market order.
An order book is simply a list of all open orders for a specific trading pair that is currently present on a cryptocurrency exchange.
An arrangement is known as a “market order” allows you to sell or acquire assets at the market’s current price right away. When you place a crypto trading order using this order type, the market value is determined using the best price currently offered in the market.
Once a market order has been placed, it will automatically be carried out and will continue to sell or purchase a specific asset until the desired order amount submitted for a trade is carried out.
When executing a market order, a trader just needs to indicate how much of an asset they wish to buy or sell. The trader does not mention a price because the best market rates at the time will determine the price.
The market order will continue to purchase or sell the specified asset once it has been placed until it has executed the requested amount.
Market orders have the disadvantage of continually buying or selling an asset until they reach the specified price due to the way order books function. When a market order purchases or sells all of the available assets at one price, it then proceeds to purchase or dispose of the asset at the following best price.
If the order is substantial enough to fill all open orders at all individual levels, the process will continue. In other words, the next available price is worsened each time the market order purchases all of the assets that are accessible at a given level.
Market orders work well for quick or nearly quick transactions. But that’s pretty much all. The same purchase would have cost less if executed with a limit order due to slippage and exchange fees.
What is a Limit Order? Basic elements of crypto currency trading
Limit orders require the submission of a precise order price and amount, in contrast to market orders, which just need traders to declare the amount of an asset they would want to trade.
In contrast, a limit order allows you to sell or purchase an asset at a specific price only. Such crypto trading orders are issued to reduce price risks.
Your Limit Order trade amount and price must be limited precisely, in contrast to Market orders. A trader will choose a limit order at that particular price for bitcoin if they want to invest in the currency but only at that particular price.
For example, if the current BTC/USDT pair price is 7,000 USDT, you have set the limit for this crypto order at 6,000 USDT. It means your crypto trading order won’t execute immediately.
We must first comprehend how the order book functions before placing our trade to acquire or sell an item. This is significant when deciding on the price you want to establish for your deal.
We have two choices when we put a limit order on the exchange. Either we can post an open order for someone else to take on the exchange, or we can accept an open order that has already been posted on the exchange by someone else.
The major disadvantage of this kind of trade order is that it won’t be filled if any potential seller or buyer doesn’t meet the limit price within the allotted period. So keep in mind that timing is a crucial aspect to take into account when you want to make a restricted order in the cryptocurrency market.
What is a Stop-Limit Order?
Limit and stop orders are combined in stop-limit orders to maximize their advantages. Once the market has reached a certain price point, this order type is used to carry out precise limit orders.
Both a stop price and a limit price are established when using stop-limit orders. The limit order’s placement time is determined by the stop price. The limit order will be placed at the limit price once the asset’s price has reached the stop price.
The limit order will execute any trades that are available at the limit price or a better price at the time it is placed. Any remaining portion of the limit order that hasn’t been filled will be available for other traders to accept as an open order on the exchange at the limit price.
In essence, this means that a stop-limit order will purchase or sell the targeted asset when the stop price is achieved. Until the order’s specified amount is met or the stop price is achieved, the asset will be bought or sold by the order. Any order balance that is still unfilled when the stop price is reached will be listed on the exchange as an open order with a stop price of that same value. Basic elements of crypto currency trading
With a stop limit, no trades will be executed at a price lower than the designated stop price. As a result, dealers may precisely manage how their order is carried out on the exchange.
To execute Stop-Limit orders, three key pieces of information are needed. The order amount, limit price and stop price are these. Basic elements of crypto currency trading.
Once the order is opened with the exchange, the order will buy or sell the specified amount at the limit price after the stop price is reached.
Let’s use the case where we now have 1 Bitcoin. Bitcoin is currently valued at $24,500, but we think the price may decrease. In this situation, a stop-limit order could be drawn up to stop us from suffering excessive losses. Setting a stop price of $24,450, a limit price of 24,400, and a quantity of 1 Bitcoin would enable us to do this. Basic elements of crypto currency trading.
If the price of Bitcoin fell below $24,450, our order would then sell our remaining shares. Up until the time the price of Bitcoin fell below $24,400, our order would keep selling our Bitcoin. The remaining balance will be put as an open order at the price of $24,400 if the entire order wasn’t filled. Similar to the example of selling Bitcoin when the price is going down, we could also set up a stop limit to buy Bitcoin when the price is going up. Basic elements of crypto currency trading.
For effective trading, it is crucial to understand the various kinds of crypto trade orders.