Understanding various order types is an essential part of trading cryptocurrencies, and utilizing them effectively is an ideal way to minimize risk, maximize gain and also reduce a tremendous amount of anxiety that can be associated with trading. However, far too many traders understand little more than the standard market and limit orders. Here we review the most common as well as some of the more advance order types with which all regular traders should be familiar.
1. Market Order
A market order is a kind of order that is executed immediately at the current market price. When you have a specific urgency to execute or want guaranteed executions at the current market price, this is order.
When you use market orders, you are subject to what is called "buyer fees." This is because you are "pulling" liquidity from the market by removing orders from the order book.
PROS: Guaranteed order filling
CONS: Acquisition and slippage
2. Limit Order
A limit order is placed with a specific minimum or maximum value that the trader is willing to buy or sell. This means the transaction can only be completed if the market price exceeds the defined limit price. You won't be assured that the demand will meet your price, so you won't be guaranteed that your orders will be packed at the target limit price, unlike market orders.
In most exchanges, when you use limit orders, you'll get a small payment known as a "manufacturer refund or manufacturer fee." This is because you are rewarded for "building" liquidity and creating thicker order books for other users rather than using limited orders.
PRO: Maker Fee Refund and No Slip
CON: Order filling is not guaranteed
3. Stop-Limit Order
Stop losses are used to minimize risk and reduce any given trade. It allows us to establish predefined risk levels, which will automatically stop the operator out of his operation if they are reached. Stop loss order type is an essential tool to avoid taking more casualties than necessary on a losing trade.
This is a conditional limit order that is not executed until the market price reaches the set trigger price. Stop-Limit orders are mainly used as a risk management tool.
4. Take Profit Order
A Take Profit order has some connections to a Stop order. A Stop will be executed when the price moves against the trader's position, while a Take Profit order does the opposite. It is achieved when the price moves in a direction favorable to the trader's position.
It means that this type of order is used to secure profits and close trades. E.g., if you bought long contracts at $ 10,000 and expect a bullish move to what you identify as the next resistance level at $ 10,300. You can then place a take profit of about $ 10,300 to ensure the trade closes if the price is reached and secure your unrealized gains.
Many traders use layered take profit orders or multiple take profit levels to ensure that they progressively lock in their profits as the price moves in the desired direction.
5. Hidden order
This is the so-called "dark group," provided mainly by private trading platform institutions and large investors who transact in an anonymous and hidden order. Therefore, the rates are not cheap. Both Kraken and Bitfinex provide this order type.
Because it will not appear in the backorder book, it is called a hidden order. Large orders appearing in the order book can possibly influence a (retail) user's original trading strategy; hence the need to keep them hidden. These dark group orders are usually separated from the traditional order books to avoid excessive market fluctuations.
6. Iceberg Order
Iceberg orders are a type of hidden order, where only part of the order is exhibited in the order book for people to take a look, while the rest remains hidden. Iceberg orders are very similar to completely hidden orders that are used to minimize the impact on the price and, at the same time, disguise them a bit.
7. Post-Only Order
This order will only play the role of "Creator." This is because the exchange generally gives the payer a more favorable handling fee, and this order mode can ensure that the user is the payer. Still, if this order will follow when a transaction is matched in the order book, the system will automatically cancel the order. It should be known that if you use Post only on Bitfinex, you may be traded with the exchange's "hidden order" and charged an "order taker" handling fee.
8. Close the Trigger
Close on Trigger is a particular order condition which only allows you to reduce or close but not increase your positions. Once triggered, this condition cancels all other orders that apply to the same place (such as take profit or stop-loss orders).
Even if there isn't enough margin, the execution of a user's stop-loss orders is guaranteed. Allowing the machine to cancel other active orders to free up margin when there isn't enough margin to execute your stop-loss order is one way to do it. This option also guarantees traders that their current position will only be reduced in contract size upon execution, avoiding unintended position increases in certain situations. Using the aforementioned order types, users could have protected themselves from losing a bigger percentage of their portfolio during the recent May/June 2021 volatility in the cryptomarkets. In the coming future, Mandala Exchange will also offer a variety of such order types for its users to take advantage with minimal fees.