What are trade orders?
Trade orders is a general term for the various types of transactions traders can use when buying and selling assets, including cryptocurrencies.
Different cryptocurrency market events call for different trading strategies.
To cater to these scenarios, many cryptocurrency platforms offer a variety of trade order types.
Different types of trade orders allow traders to instruct platforms to do much more than simply "buy/sell X digital asset now at current price." Factors such as the execution, duration, and profit/loss parameters of a trade are all configurable via different types of trade orders.
Oftentimes, the difference between novice and experienced market participants is how they utilize different order types to maximize their particular investment strategy.
Different types of trade orders
Traders have several different types of trade orders at their disposal.
Learn more about how each trade order works and the factors to consider while executing your trading strategy using these tools.
A limit order in financial trading is an order to buy or sell an asset at a specific price or better. This type of order is used to control the maximum price the trader is willing to pay or the minimum price they are willing to accept for the asset. Traders use buy and sell limit orders to protect against sudden price movements and to make sure they get the best possible price for their order.
A limit order is one of the most common types of trade orders.
If no counterparty order is available to fill the trade immediately, a trader can leave their limit order open until it's filled, canceled, or expires.
Setting a limit order allows a trader to predetermine the minimum price they will receive for selling an asset or the maximum price they will pay when buying an asset.
For example, a person might wish to buy $1,000 worth of Bitcoin (BTC) at a market price of $25,000 per BTC. To do this, they could place a limit order and include these parameters.
In some cases, such as when a sell order exists on the order book with enough volume to fulfill the trade at a lower price than the buy order requested, the limit order can still execute at a better price than the trader initially set.
If an order at a more favorable price doesn't exist on the order book, then the trader can opt to leave the limit order open until it is filled, canceled, or expires.
A market order executes a trade immediately, at the best available market price.
Market orders allow traders to enter or exit the market immediately by buying or selling into the order book’s best-priced counterparty orders at the time. Depending on order book depth and liquidity, the difference between the quoted price of the market order and the trade execution prices can vary significantly.
This difference between an asset’s current market price and a trade’s average execution price is called slippage.
Market orders are often preferred by traders that are more concerned with speed and certainty when entering or exiting fast-moving markets than they are with the exact price they receive.
For example, a trader wants to exit their ether (ETH) position as quickly as possible. This decision might be in response to a macroeconomic change, a breaking news article, or a sentiment shift. They decide to place a market order to sell 50 ether (ETH).
If the order book contains large bids (buy orders) near the current market price, the trader could exit the market with low slippage. For a 50 ETH buy, the opposite would be true if there were only a few, smaller-sized asks (sell orders) on the order book.
Stop loss order
A stop loss order is a type of order used in financial trading to help limit losses on a position in an asset.
A stop loss order seeks to limit loss on a position by selling the asset when the price reaches a certain level. The price at which the stop loss order is set is known as the stop price. If the price of the asset reaches the stop price, the system triggers the order which sells the asset at the current market price.
You can think of these orders as safety nets that may help to minimize your downside risk. Traders use stop loss orders to try and protect their trades against unexpected moves. It’s worth noting, however, that stop loss orders do not always work as expected. Technical errors and low liquidity are examples of factors that can affect the execution of stop losses.
A trader successfully purchases Dogecoin (DOGE) at $0.07 per coin, but is concerned about high market volatility. To limit their downside risk, they place a stop loss order at $0.05 per coin.
If the price of Dogecoin falls to or below the stop loss trigger price, the stop loss may close the trade. If the market falls sharply and there are insufficient opposing orders to fill the stop loss trade, it could fail.
Stop loss limit order
This type of order combines the features of a stop loss order and a limit order.
Stop loss limit orders (or stop-limit orders) provide a degree of convenience for traders and reduce the need to place two separate orders.
A stop loss limit order seeks to limit losses on a position. It is an order to buy or sell an asset when it reaches a certain price, known as the stop price. When the actual price reaches the stop price, the order becomes a limit order to buy or sell at the limit price or better. This type of order is used to protect against further losses if the price of the asset moves in an unfavorable direction.
A trader may set a trigger price and a limit price to define a specific price range for order execution. Stop loss limit orders are useful when traders want to limit losses and control the minimum price they want to execute the trade at.
For example, a trader has an open long position on SOL and decides to set a stop loss limit order in the SOL/USDT market. In this example, the price of SOL is currently at $20. The trader decides to set the stop price at $18, and the limit price at $17.80. If prices hit the stop trigger price at $18, the trading platform will place a limit sell order at $17.80, or better.
Stop loss limit orders may allow a trader to exit the market if an asset’s price begins to fall.
Take profit order
A take profit order is a type of order used to close a position when it reaches a certain level of profit.
Traders use this order type to lock in profits when the market is moving in the trader's favor. A trader can choose to set a take profit order at a specific price or at a certain percentage of the current market price. Once the system triggers the order becomes a market order to sell, closing the position and realizing the profits.
This type of trade order may be useful for traders that want to lock in gains at a target price.
These orders execute for the trader when the market price meets the trigger price.
For example, let's say a person holds 100 MATIC tokens and believes prices will rise to $1. They decide to set a take profit order at $1 to sell 50 MATIC at market when the price reaches that level. This way, the trader can realize gains and scale out of their position, regardless of whether they're online or not.
Take profit limit order
Take profit limit orders combine the features of take profit and limit orders.
These require a trigger price and a limit price to define a specific price range for trade execution once the target price is reached.
A take profit limit order is a type of order to close a position when it reaches a certain price level. This order is used to lock in profits when the price of an asset reaches a predetermined level. The trader places an order at a price that is higher than the current market price. If the price reaches its limit, the system executes the order and closes the position. Traders may use this order type to protect profits and limit losses.
These orders may be useful when traders want to secure profits and exit a position at a specific price or better, once prices reach a set target.
For example, a trader might set an ADA/USDT take profit limit order with a trigger price of $0.37 and a limit price of $0.36. The order activates if the price reaches $0.37, and executes the trade at a limit price of $0.36, or better. However, if ADA/USDT fails to reach the target price, the order will not trigger and the position will be left open.
These order types may offer traders flexibility in managing their trades, allowing them to enter, exit, and protect positions according to their trading strategies.
Factors to consider when using different order types
When using different order types for trading, there are several factors to consider to make more informed decisions.
You can check out the Kraken Learn Center’s article A brief introduction to technical analysis for a more complete overview, but here are some key factors you should keep in mind:
- Price patterns: Identify and analyze various price patterns, such as trend lines, support and resistance levels, chart patterns, and candlestick patterns. These patterns can sometimes provide insights into market sentiment and potential future price movements.
- Indicators: Use technical indicators to gain additional information about the market. Examples include moving averages, relative strength index (RSI), stochastic oscillator, MACD (Moving Average Convergence Divergence), and Bollinger Bands. These indicators can help identify trends, overbought or oversold conditions, momentum, and other relevant data points.
- Volume: Consider the trading volume involved with price movements. Higher volume often confirms the strength of a trend or indicates the presence of significant market participation. Conversely, low volume may suggest a lack of interest or potential reversal.
- Timeframes: Analyze price action and indicators across different periods of time, such as short-term (intraday), medium-term (daily or weekly), and long-term (monthly or quarterly). Different timeframes may reveal different trends and patterns, providing a more comprehensive view of the market.
- Market context: Consider the broader market context and macroeconomic factors. Analyze the overall market trend, economic indicators, news events, and other factors that could impact the price movement of the asset you are trading.
- Risk management: Implement sound risk management strategies, including setting stop loss orders, determining risk-reward ratios, and position sizing. Technical analysis can provide useful entry and exit signals, but managing risk is crucial to protecting capital and limiting potential losses.
- Backtesting and validation: Test and validate your trading strategies using historical data. Backtesting involves applying your technical analysis approach to historical price data to assess its effectiveness. This process helps refine your strategies and gain confidence in their potential success.
- Psychological factors: Recognize the influence of psychological factors on trading decisions. Emotions such as fear, greed, and impatience can impact judgment. Maintain discipline, stick to your trading plan, and avoid making impulsive decisions based on short-term fluctuations.
Remember, technical analysis is just one tool in the trading arsenal. It's important to combine technical analysis with fundamental analysis, market research, and other sources of information in order to implement an effective trading strategy.
Start using trade orders
Now that you have learned all about the different types of trade orders at your disposal, are you ready to take the next step?
Kraken Pro allows you to execute your trading strategy using each of these trade order types.
Sign up for a Kraken Pro account today to put your trading knowledge to work.