For a Crypto Trader it is important to buy and sell coins at the right price to avoid loss or to gain profit. Therefore trading using the right or preferred option will help one attain the desired outcome. For a person who is new to trading it is important to understand terms like Limit, Market and stop loss orders in an exchange. These are trading tools used every time to buy and sell a cryptocurrency.
Limit order is an order where one can buy and sell coins at a certain price. Here one can set the preferred price and quantity while buying or selling a cryptocurrency. The order will get executed only at the price which has been set for the coin or better. In limit order we have the control over the price however the execution may take time or we may not get the desired quantity based on the availability or there may be orders placed above yours with similar price.
Example: Trader A wants to buy bitcoin. For instance the current price of a bitcoin is $5000. Using the Limit option, A can input the preferred price at which he would like to buy for e.g A wants to buy 0.04 BTC at the rate $4600. The order will get executed only when a different user is selling at $4600 or a better price is available.
In Market order, the order is filled at the price available in the order book, it does not allow any control over the price. Therefore a single order may have order filled at different rates. This is because it executes at the best available price in the order book. In layman’s term, market order simply means you are willing to take the asset at any price someone is offering.
Adam wants to buy 3 Bitcoin using Market order and lets consider the price of a bitcoin is $5000. In the order book one users have placed a sell order of 1 Bitcoin @ 5500 and another user wants to sell 4 bitcoin @ $5600. Now when Adam will place order using the market order, the system will first take 1 Bitcoin @ 5500 and remaining from two @ 5600 as these are the best price available right now.
A stop limit order is an order which gets executed when the price of an asset reaches a specific price. This option is used by traders mostly when the market is volatile. The main objective of stop limit is to prevent or limit a potential loss and buying using stop limit will enable one to collect profits as the order will execute when the price hits above your quoted price.
Sarah bought 3 bitcoins when the price was $4000. Now using the stop limit order she can quote a price like $3800 which means if the price of bitcoin will go down and reaches to 3800, the order will get executed hence preventing too much loss.