Types of Trade Orders: The Basics of Cryptocurrency Trading
By Arya Florence
On 09 February 2020, the Bitcoin (BTC/USD) value rocketed above the big $10,000 mark. Though this was not the first time, it is considered as the precursor to the next cryptocurrency bull run. Meanwhile, a few enthusiasts have predicted that the price of one Bitcoin will hit a million dollars. But, the real question is, what is driving up the price?
The jury is split on this one. Some claim that this occurrence can be linked to the increased awareness of the advantages of cryptocurrencies and its acceptance as a medium of exchange. Others state that cryptocurrency trading has a role to play in this recent resurgence. However, we shall only pay attention to the latter activity.
Cryptocurrency trading is nothing but the buying and selling of different digital currencies. Modeled on the lines of the traditional forex market, this segment allows users to profit from the price fluctuations.
Today, cryptocurrency trading is a very popular activity with several exchanges reporting daily trading volumes that run into the billions. Moreover, many platforms are spearheading the process of Initial Exchange Offering, where entrepreneurs can list their projects on exchanges to raise funds. This is blurring the dynamics between crowdfunding and trading while also allowing traders with greater flexibility and diversity.
But, at the heart of this trading business are the different order types that make it a reality. This article will throw light on some of the most popular ones:
Market Order: Those who are familiar with yard sales or eBay may have invariably come across this concept. For instance, say you have an old toaster that you want to get rid of. You pitch it in your front lawn or put a classified on the website. You also list a price, say $100, which helps in filtering the buyers. Finally, someone who is ready to shell out a $100 becomes the lucky owner of the toaster! So, how does this work in cryptocurrency trading?
It’s quite simple, the exchange platform allows buyers and sellers to list their best price. Then, orders are matched if both parties reach a consensus, thus enabling trades to be executed in a quick and efficient manner.
Limit Order: Now, let us say that the buyer interested in the toaster had a budget of $85. He would then wait until you lowered the price of the toaster to $85 or less or if another toaster was available at the price he had in mind. This scenario describes a limit order.
In cryptocurrency trading, a limit order is when a trade meets the predetermined price parameters set by the buyers or sellers. This type of orders is used to limit losses in the case of a bearish market. Alternatively, limit orders are used to automate transactions as most cryptocurrency exchanges function 24x7 and with traders being human, they are not able to follow the market around the clock.
Stop Order: This order mechanism is used to lock in profits of a particular trade and limit the chance of loss in a bullish market with the predefined entry or exit price. When the stop price is reached, your stop order becomes a market order and it gets executed.
Stop Orders are of various types:
• Buy Stop
• Sell Stop
These orders can be used as per your trade requirements.
Margin Trading: No one can deny the veracity of the adage, “Strength in Numbers,” whether it is in politics, economics or any other sphere of life. Likewise, in cryptocurrency trading, investing in larger sums may result in larger rewards. Not every trader has the resources to execute large transactions; instead, the exchange steps in to help. By allowing one to borrow funds to place orders, traders are motivated to invest more in bullish trends and earn profits. In return, traders required to return the borrowed principal along with a predefined commission.
These are the three main types of orders that are employed on a day-to-day basis by traders. However, apart from these, there exists a multitude of other specialized orders that serve specific purposes or situations.
Of late, cryptocurrency trading is experiencing a worldwide expansion. Likewise, countries are acknowledging the benefits of blockchain and cryptocurrency, and are actively passing legislation to accommodate these technologies. Recently, the Indian Supreme Court quashed RBI’s cryptocurrency trading ban. Due to that, now traders and exchanges can make use of the Indian banking system for cryptocurrency trade-related transactions.
Hence, it is a good idea to Start Your Own Exchange and tap into this potential. Launching a platform is very easy as there are several companies offering cryptocurrency exchange development solutions. However, we advise you to conduct proper research before selecting an app developer to develop your platform.