【Tool】Basic Ordering Manual: Understanding the ins and outs of various order strategies at once

There are a variety of order types available on cryptocurrency exchanges, from market orders for quick execution to limit orders for careful planning, as well as many other order strategies that cater to the preferences of traders. Understanding these basic tools can help you more accurately set stop-loss and take-profit levels! So, what are these order strategies?

In reality, individual retail investors may not need to use every type of order. Some order types are more suitable for large investors, institutions, and professional traders. This article will analyze the main functions of various order types and their advantages and disadvantages.

Only Experts Use These – Basic Orders

Market Order

• Pros: Quick execution
• Cons: Price determined by current market

Market Price Execution: Market orders cannot set a price; the system matches them with the best current market price, ideally corresponding to the buy and sell orders on the order book, making them efficient for quick execution.

Depth Matters: Due to market price fluctuations and issues with order book depth, the execution price may not be ideal. For example, using the WAVES/USDC trading pair on Binance, selling 1,000 WAVES tokens at market price could result in a price as low as below $1.0811.

Higher Fees: Typically, exchanges charge lower fees for "makers" to encourage users to place orders and increase trading depth. Market orders are considered "takers"; for example, on the derivative exchange FTX, the fee for takers is 3.5 times that of makers.

Therefore, if you are not concerned about higher fees, less than ideal execution prices, and have an immediate trading need, such as buying at market price during a rapid price increase or selling at market price during a price drop, a market order would be a suitable choice.

Limit Order

• Pros: Fixed execution price
• Cons: Not guaranteed to execute

Price Set by You: Limit orders allow users to set the execution price, providing security but not guaranteed execution, with lower fees. Especially when market liquidity is low and prices are volatile, limit orders prevent unexpected execution prices.

Fees: As mentioned with market orders, exchanges usually charge lower fees for "makers," but there are exceptions, like Level 0 users on Binance, where both maker and taker fees are the same:

Advanced Use of Limit Orders (Misconception): During the March crypto market crash, the LINK/USDT trading pair on Binance plummeted to $0.0001. A user placed a $90 limit order to buy about 900,000 LINK tokens. On the same day, another user bought 4,986 LINK at $0.61 and sold at $2.4 (see image below).

CEO Zhao Changpeng explained that the $0.0001 limit buy order for LINK/USDT was placed on the first day of trading (2019/01) and emphasized that Binance does not cancel user orders, which led to this transaction.

In reality, placing limit orders at extremely low prices is difficult to execute. Assets like LINK may have such long wicks once every two years, making it an inefficient trading method. Therefore, limit orders are mainly for executing at desired prices or for averaging costs with "multiple limit orders at different prices."

Limit Stop-Loss (Take-Profit) Order (Stop Limit)

• Pros: Helps lock in profits
• Cons: Requires trading experience

Limit Order with Trigger Price: A stop-loss/take-profit order is an advanced version of a limit order where you set a trigger price and a limit price, with the limit price being the actual execution price when the trigger price is reached, similar to a regular limit order.

For example, if you anticipate Bitcoin breaking $9,000 and continuing to rise, you might set the trigger price for a buy order at $9,000, with the limit set above $9,000 (e.g., $9,100). It's crucial to note that setting the trigger and limit prices too close may prevent execution due to rapid market fluctuations. After triggering, it functions like a regular limit order.

Conversely, if you believe Bitcoin breaking $9,000 means it won't rise further, you could set a sell order with a trigger price at $9,000 and a limit price below $8,900. Compared to a regular limit order, a limit stop-loss (take-profit) order confirms market trends.

Market Stop-Loss (Take-Profit) Order (Stop Market)

Similar to a limit stop-loss order, this order switches to market execution after the trigger price, ensuring the trade order is executed, with the downside of potentially less than ideal execution prices and higher fees, similar to market orders.

Advancing to Professional Trader – Advanced Orders

One Cancels the Other Order (OCO)

• Pros: Adds an extra layer of security compared to Stop Limit
• Cons: Not guaranteed to fully execute

Solution for Misreading Trends: This order strategy allows users to place a "limit stop-loss (take-profit) order" and a "limit order" in one order. When one executes successfully, the other is automatically canceled.

For example, with Bitcoin at the current price of 10,129, if you believe there's an 80% chance it will reach 12,000, you would set the limit in the OCO sell order at $12,000 to maximize profits. However, the current price might also be near a recent high, so you set a trigger at $10,000 and a limit at $9,900 for a limit stop-loss order to prevent being trapped if the prediction is wrong.

Note that reaching the trigger price does not cancel the "limit order"; it is only canceled when partially or fully executed. User-initiated order cancellations simultaneously cancel both the "limit stop-loss (take-profit) order" and the "limit order."

Trailing Stop Order

• Pros: Helps lock in profits
• Cons: Order may not trigger

Locking in Profits, Buying Low, Selling High? Trailing stop is similar to a market stop-loss (take-profit) order, but the trigger condition is a price range.

Locking in Profits: Using the FTX exchange interface as an example, if you bought Ethereum at $200 and it rises to $240, and you want to secure profits but fear further increases, you could enter $10 as the trigger condition in the red box for a trailing stop order. This means the trailing stop order will maintain a $10 distance from the market price and adjust the execution price as the price changes.

For instance, if Ethereum's current market price is $236 and reaches the trigger condition ($10) and drops to $226, the order will sell at market price, concluding the trade. Conversely, if Ethereum continues to rise and reaches $300, then slightly drops to trigger the condition ($10), the execution price will be a nice $290.

From the example above, we see that a trailing stop helps lock in profits, ensures order execution at market price, but be cautious; setting the "trailing value" too low may result in being left behind, while setting it too high may reduce the likelihood of execution in low volatility conditions.

Other Lesser-Known Orders

Immediate Or Cancel Order (IOC)

This order type immediately executes part (or all) of the order and cancels any "unexecuted portions." For example, using this mode to sell one Bitcoin at $10,000 but only 0.9 Bitcoin is executed, the remaining 0.1 will be immediately canceled. Comparing it to the next order type, FOK, can help understand the significance of this order.

Fill Or Kill Order (FOK)

The effect of this order is immediate "full execution" or cancellation. For example, using this mode to sell one Bitcoin at $10,000 means it will execute one full Bitcoin at $10,000 or cancel the order immediately.

Post Only Order

This order only acts as a "maker" because exchanges usually offer makers lower fees and ensures users are makers. If this order matches a trade in the order book, the system automatically cancels the order. Note that using Post Only on Bitfinex may match the exchange's "hidden orders" and incur "taker" fees.

Hidden Order

This is known as a "dark pool," primarily offered by private trading platforms for institutions and large holders to trade anonymously and hide orders, resulting in higher fees. Exchanges like Kraken and Bitfinex provide this order type; the image below shows Kraken's dark pool fee table.

Because it doesn't appear in the order book, it's called a hidden order to "not affect other traders." This is because large orders in the order book may disrupt users' original trading strategies, making large orders harder to execute. These dark pool orders usually have an independent order book to prevent excessive market fluctuations.

Mainstream Exchange Order Support List

Orders Ultimately Serve as Assistance

The "lesser-known orders" mentioned are generally not necessary for retail traders; orders like IOC and FOK are mainly for professional trading scenarios. These professional traders may have large, rapid arbitrage needs, where the window for price arbitrage rapidly diminishes if not executed immediately, rendering the order valueless even if executed. Hence, orders like "immediate execution or cancel" are designed for such scenarios.

What do retail traders need? Market and limit orders are essential, while other order types vary depending on the individual. "Limit stop-loss orders" are typically used by traders who excel at observing price breakthroughs within a range and anticipate significant market movements. OCO orders add a stop-loss feature.

For long-term "Hodlers," aside from regular market and limit orders, using "trailing stop orders" to buy low during dips is also a good choice.

Overall, be prepared with a strategy before executing each trade, plan your trades, and execute your plan. Inconsistent trading plans make it difficult to identify mistakes in each trade. It's unnecessary to master every order strategy mentioned above; selecting order strategies that fit your trading rules is the key.