What types of orders to trade Bitcoin on crypto exchanges are there?

There are several main types of trading orders, which you are able to use when operating with Bitcoin through a particular cryptocurrency exchange – market, limit and stop orders. Of course, if we aim at an even more precise order classification, that number will undeniably increase.

Market order

This type of orders allows you to purchase or sell Bitcoin at the best average market quote.

By a ”market quote” we mean:

1. the lowest current ask quote for a buy order and
2. the highest current bid quote for a sell order.

The market quote is usually the best quote on a crypto exchange’s order book.

By ”best average market quote” we mean the weighted average quote of the best current bid quotes and the best current ask quotes, at which the market order can be filled.

A market order to buy can be filled by a few of the lowest current ask quotes on the exchange’s order book.

A market order to sell can be filled by a few of the highest current bid quotes on the exchange’s order book.

Limit order

This type of orders allows you to purchase or sell Bitcoin at a predetermined price or better. Limit orders may ensure a more favorable fill price on average compared to market orders, because bid quotes and ask quotes, at which an order can be filled, will be at the limit. On the other hand, with limit orders you have no guarantee that they will be completely filled, or will be filled at all. It may so happen that no suitable bid or ask quotes to fill the limit order are present on the market.

In case the lowest current ask quote for the BTC/USD pair is $12 500 and you believe your order can be filled at an even lower quote, you may place a limit order to buy at say, $12 480.

In case the highest current bid quote for the BTC/USD pair is $12 400 and you believe your order can be filled at an even higher quote, you may place a limit order to sell at say, $12 425. It will then begin to fill at $12 425 or better as soon as bids at $12 425 or higher are present on the market.

Stop Loss order

This is a closing order aimed to restrain losses and, sometimes to lock in gains (trailing stop), when you buy or sell Bitcoin.

When you place a stop loss, a market order to buy or a market order to sell will be initiated as soon as the market reaches the stop price level.

If you purchase 1 Bitcoin at $10 000 and you do not feel comfortable with a loss larger than 15%, you may place a stop loss order to sell with a stop price level of $8 500.

Stop Loss Limit order

When you place such an order, it will actually trigger a limit order to buy or a limit order to sell as soon as the market reaches the stop price level.

If you intend to go long, by setting a lower limit price than the stop price you will have a greater chance to have your limit order filled.

If you intend to go short, by setting a higher limit price than the stop price you will have a greater chance to have your limit order filled.

Trailing Stop order

Such an order is used in a trending environment and allows you to secure gains. The stop is set at a certain percentage away from the current market price – below the market price for long positions and above the market price for short positions. As long as the market is moving in the direction of your trade, the trailing stop order will secure what has been gained by enabling the position to remain open. If the market, however, suddenly changes direction and moves by a specified percentage against your trade, the position will be closed and the trailing stop will restrain losses.

Let us consider the following example. You decide to go long the BTC/USD pair with 2 coins at $10 400 and set a 5% trailing stop order (also known as ”Good ‘Til Cancelled” order) to secure your position. This means that if BTC/USD declines by 5% or even more, the trailing stop order will be triggered, limiting losses. Over the next month Bitcoin adds 3% to its value and reaches $10 712. You are obviously enjoying the profit you have registered for the moment, but express concerns that BTC/USD may retrace its gains. As your trailing stop remains in place, if Bitcoin declines 5% or more, say within the next week, the trailing stop will be triggered. You may decide to tighten the trailing stop to 4%, allowing your trading position more room to run. Over the next few trading sessions, Bitcoin gains further and reaches $11 400, but then suddenly drops 4% within a single trading day to $10 944. This 4% decrease would trigger the trailing stop and assuming the order was filled at $10 944, you would lock-in $544 of profit per coin.

Take Profit order

With such a type of orders you are able to set a profit target on a position. The profit target is usually set either as an absolute price value, or as a percentage.

When you place a take profit, a market order to buy or a market order to sell will be initiated as soon as the market reaches the profit target level.

Let us consider the following example. You decide to purchase 1 Bitcoin at $10 000 and you wish to set a profit target at $11 000. In case you wish to sell at market as soon as the highest bid quote reaches $11 000, you may place a take profit order and set a profit target level of $11 000. Keep in mind, however, that the average fill price on the sell order may actually be lower than $11 000. Thus, a better option will be to place a take profit limit order to sell.

Take Profit Limit order

When you place such an order, it will actually trigger a limit order to buy or a limit order to sell as soon as the market reaches the profit target level.

If you intend to go long, by setting a lower limit price than the profit target price you will have a greater chance to have your limit order filled.

If you intend to go short, by setting a higher limit price than the profit target price you will have a greater chance to have your limit order filled.

Let us go back to the example above. You buy 1 coin at $10 000 and wish to ensure a profit of $1 000. To do so, you may place a take profit limit order to sell, while setting a profit target price of $11 000 and a limit price of $11 000.

There are also the so called combined orders such as the following:

Stop Loss-Take Profit order

It will actually trigger either a market order as soon as the market reaches the stop price level, or another market order as soon as the market reaches the profit target level. In this case, you will have a stop loss order combined with a take profit order. When the market order, which is triggered by your take profit order, is filled, the other market order will be canceled (and vice versa).

Stop Loss-Take Profit Limit order

It will actually trigger either a market order as soon as the market reaches the stop price level, or a limit order as soon as the market reaches the profit target level. Note that the limit order price should be made the same as the profit target price. In this case, you will have a stop loss order combined with a take profit limit order. When the limit order, which is triggered by your take profit order, is filled, the market order will be canceled.

Let us consider the following example. You decide to purchase 1 Bitcoin at $10 500 and wish to set a stop of $500 and a profit target of $1 000 or better. To do this, you may place a stop loss-take profit limit order to sell with a stop price level of $10 000 and a profit target level of $11 500. This way: first, a market order to sell will be triggered if the market reaches $10 000, or second, a limit order to sell will be triggered at $11 500 if the market reaches $11 500.

Stop-Limit order

It will actually trigger either a market order as soon as the market reaches the stop price level, or a limit order will be filled at the limit price. In this case, you will have a stop loss order combined with a limit order. Once you place the stop-limit order, the limit order will actually be recorded in the exchange’s order book – or it will not be triggered at a later moment, as is the case with stop loss-take profit limit orders. When the limit order is filled, the market order, which is triggered by your stop loss, will be canceled. And, when the market order, which is triggered by your stop loss, is filled, the limit order will be canceled.

When it comes to trading CFDs on Bitcoin, most of the order types we have discussed in this article are usually featured on trading platforms offered by on-line brokers.