By Larry Wright
Introduction
A broker or an exchange is a marketplace where buyers and sellers come together to trade securities, commodities, currencies, cryptocurrencies, or other financial assets. Buyers and sellers place orders to buy or sell stocks or cryptocurrencies.
Once orders are placed, the exchange’s electronic system matches buyers and sellers based on the price and quantity of the orders. For example, if a buyer is willing to pay the same or a higher price than a seller is asking, then the trade will be executed.
Once the exchange has matched buyers and sellers, the trade is executed at the agreed-upon price. However, these orders can be of different types, such as market orders, limit orders, stop orders, and so on.
Different Order Types
There are several different order types used in trading, each designed to help traders execute their trades in a specific way. Here are some of the most common order types used in trading:
Market Order
A “Market order” is the order to trade stock or cryptocurrency at the best available price. Market orders are filled at the current market price and are typically used when the trader wants to buy or sell quickly and is less concerned about the exact price at which the trade is executed.
For example, if you want to buy 1 BTC and the Current Price is $25000, if you place Market Order and someone is selling 1 BTC at $25000 (Order book), your Order will be executed at once.
Limit Order
A “Limit order” is an order to buy or sell at a specific price or better. The trade will only be executed if the cryptocurrency reaches the specified price or it is better than the specified price. Limit orders are often used by traders who want to buy or sell a security at a specific price point rather than the current market price.
For example, if you want to buy 1 BTC for around $20000 and the current price is $25000, the order will not execute until the price drops to $20000.
Stop-limit Order
A “Stop-limit” order is similar to a “Stop order” but with an added limit order. When the stop price is reached, the trade is executed as a limit order at the specified limit price or better. Stop-limit orders are often used to limit losses or protect profits while also ensuring that the trade is executed at a specific price.
For example, if you bought 1 BTC around $25000 and the current price is $30000, and you want to place the Stop-Limit order, you will set the stop price to $29000 and Limit Price to $28000 in this way when the price will reach $29000, An order to sell 1BTC at $28000 will be placed, and if the price reaches $28000, your order will be executed.
Trailing Stop Order
A trailing stop order is a type of stop order that is set at a certain percentage or dollar amount below the market price. As the market price increases, the trailing stop price also increases by the specified percentage or dollar amount. If the market price falls, the stop price remains fixed, protecting the trader from losses.
Fill or Kill (FOK) Order
It is an order that must be processed entirety or not executed at all. FOK orders are often used when traders want to execute a trade quickly and don’t want to risk partial fills. For example, if you want to Buy 2 BTC, the order will only execute when there are 2 BTC available otherwise, it will be canceled, meaning the order cannot be filled partially.
All or None (AON) Order
“All or None” (AON) order is an order that must be filled as a whole, or it is not executed at all, but unlike FOK orders, AON orders can be executed over time as long as the entire order is filled. AON orders are often used when traders want to ensure that they receive the full amount of shares they want to buy or sell.