The Fundamentals of Market Order, Stop-Loss Order and Limit Order
You can use different order types while trading on crypto exchange platforms. Among them, the most well-known and commonly used ones are market orders, stop-loss orders and limit orders. Although you can buy or sell cryptocurrencies in all three order types, these order types may differ in terms of the logic behind their use and may affect your trading strategies in different ways.
In order to be able to trade on Felixo Exchange in accordance with your needs and investment motivations, you should have good grasp of these order types and the distinctions among them.
What is a Market Order?
A market order allows you to buy or sell cryptocurrency at the price when you place the order. You can buy or sell immediately with the order you place in the trading pair you choose. With the order you place in accordance with your strategy, you can buy or sell cryptocurrency at the current price without waiting.
How to Place a Market Order?
It is quite simple to place a market order. You can place your order without setting any price. In this type of order, since the current price at the time of order is valid, the transaction takes place at the time you place your order and at the current price, instead of a future date or a different price.
To place a market order, simply select a coin parity and go to the order tab and select “market”. Then you can easily complete your transaction by entering the amount of coins you wish to buy or sell and confirming your order.
Taker Order
To understand the taker order, it is first necessary to explain the concept of taker. All players in the coin market take on the roles of makers and/or takers. The investors participating in the market play at least one of these roles, which also indicate the strength of the relevant coin market.
In liquid markets, where trading can be done with low margins, the buying and selling prices are very close to each other. This liquidity increases thanks to the orders placed by the market actors. A participant placing a taker order makes a purchase by using a part of this liquidity. In this way, the orders in the order book are activated immediately.
By placing a market order on the Felixo Exchange platform, you assume the role of taker. As you will see below, you can also take on the role of taker by placing a limit order, but you need to execute another market participant’s order for this.
Maker Order
If the buy or sell order you have placed does not match with another order, your order is posted on the order book and waits until a match takes place. Orders placed at a price lower than the current lowest price or higher than the current highest price are considered maker orders.
Your order is posted on the order book, where all the buying or selling offers are recorded, and is kept on hold only to be processed when the price of the product you are trading matches with your order. This means that you take on the role of market maker.
Advantages of Placing Market Orders
The market order you place in accordance with your strategy gives you certain advantages, including the ease of use and security offered by market orders. Thanks to this type of order, you can prevent delays that may arise from price fluctuations of coins with high volatility and liquidity, especially Bitcoin. As soon as the coin you want to invest reaches the price you want, you can safely and easily trade the coin with the market order you place.
Another advantage of placing a market order is that it allows you to easily buy or sell the product you want to invest in the amount you desire. This order type is also the most convenient way to cover all of your short positions.
The greatest advantage of using a market order is that it prevents any possible delay or waste of time. Thanks to this, you can cover your positions, especially in sudden price fluctuations, or open a trade immediately to profit by these fluctuations.
Disadvantages of Placing Market Orders
Using a market order brings some disadvantages as well as the advantages. Although placing a market order is to your advantage in terms of speed and security, it also has several disadvantages, especially in terms of control.
One of the leading drawbacks is the susceptibility to slippage. Although the cryptocurrency market is a highly liquid market, sudden price fluctuations in some low-volume coins can cause you to buy at a higher price than you want and pay more than you have planned, or sell your product at a lower price than you want, resulting in profits below your expectations.
In addition, since market orders are processed immediately without being posted on the order book, you can pay higher commissions compared to limit orders. As you are not in a market maker position, your order will not be recorded in the order book and you will not be able to benefit from the low commission rates specified in limit orders.
Another disadvantage of placing a market order is that it makes it difficult for you to act in accordance with your strategy in markets that are open 24 hours, especially the coin market. In order to place a market order, you need to be ready to trade and follow the market. Limit order is the only way to eliminate this disadvantage, which renders you vulnerable to price movements when you are not actively following the market.
What is a Limit Order?
Unlike a market order that executes your transaction immediately at current prices, a limit order does not execute the transaction when you place the order. This order type is added to the order book and is processed when the relevant coin reaches the price you have specified while placing the order. In this way, you can buy or sell cryptocurrencies at a lower or higher price than the current market price.
How to Place a Limit Order?
Although it is not as simple as placing a market order, it is still quite easy to place a limit order. When placing a limit order, you should first determine a certain price. After determining the price at which you wish to buy or sell the coin, you should specify the amount of the coin you are willing to trade. Following your confirmation, your order is posted on the order book, but not executed immediately. The order is processed when the market price matches the price you have specified in your limit order.
Buy Limit Order
When you want to make a purchase at a price different from the market price, you need to place a buy limit order. Your order will be processed when the market price reaches the price you set. If you predict that the coin you wish to trade will rise in value, you will have the opportunity to sell your coin at a higher price that you have predetermined by placing a buy limit order.
Sell Limit Order
You can also place a limit order when you want to sell the cryptocurrency you have bought with a market or limit order at a price that you will determine. When the price you set according to your strategy and risk management considerations matches the market price, your order will be activated and your selling process will be executed.
Advantages of Placing Limit Orders
By placing a limit order, you can maximize your unrealized gains. You can also prevent possible losses with a limit order. For this very reason, the leading advantage of using this order type is that it allows you to act according to your plan.
Another advantage of using a limit order is that you don’t always have to sit in front of the screen to follow the market. By placing a limit order, you can buy or sell the cryptocurrency you want to trade when the price reaches the price you set. For this, you do not need to constantly monitor the market.
Another considerable advantage of using this order type is that it enables you to act as a market maker and trade with lower commission fees.
Disadvantages of Placing Limit Orders
The leading disadvantage of placing a limit order is that your order may not be executed. Due to the price fluctuations in the cryptocurrency markets, your limit orders may not go through in sudden increases or decreases. Since the orders posted on the order book are processed according to time priority rules, your order will be activated if the orders entered at the price you set before you match the price you set. If the market price does not meet the limit orders entered at the price you set, it becomes more likely that your order might not be executed. This may also result in the execution of a portion of your order amount in markets that have sudden fluctuations such as the coin market.
What is Stop-Loss?
Stop-loss is one of the commonly used order types. A stop-loss is a market order that you can employ to minimize your possible losses. Although stop-loss is an order type in which you set the price, it is not posted on the order book since it is a market order. For cryptocurrency platforms, a stop-loss order becomes a market order provided that the market price reaches the trigger price.
The “stop limit order”, which is another type of order similar to the stop-loss order, is not a market order, but a limit order. If the market reaches the trigger price you set, your stop loss order will be executed at the limit order price you set. Therefore, while placing an order, you need to set both the stop price and the limit price.
How to Place a Stop-Loss Order?
In order to place a stop-loss order, you must first determine the cryptocurrency you want to trade. Then, you should select the stop-loss order among the order types and enter the trigger price first and then the price that will act as the limit order. After entering the amount of cryptocurrency you want to trade on the “Amount” tab, you can confirm and complete placing your order.
Buy-Stop Order
A buy-stop order allows you to buy the cryptocurrency you want to trade at the price you wish. After determining the trading strategy that suits you, you can use a stop order by placing a buy-stop order to avoid missing an uptrend that you see as an opportunity.
Sell-Stop Order
Similar to a buy-stop order, you can use a sell-stop order to minimize your risk of loss. If there is a decrease in the price of the cryptocurrency you want to invest in, which may have negative consequences for you, you can place a sell-stop order to minimize your loss.
Advantages of Placing Stop-Loss Orders
If you combine your stop-loss order with a stop limit order, you have considerable advantages. The leading advantage is the opportunity to develop a strategy. By using a stop-loss order, you can customize and execute your plan more easily. In markets where you can trade all day, such as cryptocurrency markets, it can be difficult to control at what price you will buy or sell assets. In such cases, you can buy or sell at the price you want without necessarily monitoring the market all the time.
Besides, thanks to the stop-loss order, you can determine the amount of profit you see fit. Otherwise, your order will be executed at the current market price. If you have a strategy of holding the product you have bought instead of selling it, stop-loss order will be a favorable option for you.
Lastly, if you combine your stop-loss order with a stop limit order, it will be considered a limit order, and therefore you will pay less commission fees on stop-loss orders compared to market orders.
Disadvantages of Placing Stop-Loss Orders
Placing a stop-loss order also brings some disadvantages. One of the leading disadvantages is that the entire order or a portion of the order may not be activated. Your stop-loss order can only be executed at the price you set. Consequently, if the market does not reach that price, your stop-loss order may not be executed.
This also applies to sudden price rises and falls. Even if your stop-loss order is triggered, it may not be realized at all or it may be partially realized only to a certain amount. The gap between your stop-loss order and your stop limit order may not be enough and your order may not be executed at all.
On Felixo Exchange, you can easily employ the type of order you have chosen according to your strategy, needs and plans. For this, you can download Felixo Exchange and perform your transactions in the fastest and most reliable way.
