If you’re new to the crypto trading world, you must’ve seen some commands that might get you a little bit confused at first.
Some of those commands are related to order types.
When you are on your way to trade, the most common two options appear Limit Order or Market Order.
There’s also the Stop Order, but this time, we will focus on the Limit one.
First, how does an Exchange work?
First of all, what we need to understand is that ‘orders’ and the system of the Exchange itself are not new or made out of the blue.
It is very similar and it was based on the already existing exchanges of the stock market.
Almost everything inside the stock market works the same way as the crypto exchange: a place made for trading stocks, where people go to buy and sell, placing what they want to buy, the amount, and for how much, as others fill in those requests if suitable, and vice versa.
To understand an Exchange a little bit better, let’s imagine a big marketplace, just like the ones we had in the past such as big fairs or open markets for food and goods.
Someone is yelling “I want to buy cabbages!” and another one, inside the tents, yells “Cabbages, cabbages, here!”.
When the buyer comes closer to the seller and offers them money for a specific amount of cabbage, that’s when a trade happens, right?
Well, now think about the big – and sometimes scary – board of the digital exchange.
This is a place where virtually, and in an illustrative way, people are yelling ‘I want to buy Bitcoin!’ and the other is saying ‘I have Bitcoin!’.
However, the difference is that not every tent accepts the same asset to trade with. So, in the Exchange, you’ll have different “tents” where you can trade the coins that you have for the coins they are offering.
Let’s say you don’t have ‘USDT’ but you do have ‘Bitcoin’. And you want to trade it for ‘KLV’.
So you go to the ‘BTC/KLV’ tent and try to trade it there.
But there’s more than one way of trading and that’s when the Orders come along.
What is an Order?
The Order is the request for a trade, basically.
When you insert your Order, you are saying the amount you want to trade and how much you’re asking for, in case you’re selling.
And when you’re buying, you insert the quantity you want to buy and how much you want to pay for the asset.
Now, after that, it is a matter of a “match”.
Let’s say that it’s just like a dating app: someone will correspond the specifics that you are searching for and agree with your “proposal”.
Once that match is done, the trade happens!
Which are the types of Orders?
Well, you have the Order of the Phoenix…
In the Exchange, you have more than one type of Order and I’ll explain why that happens.
Let’s say you want to trade Bitcoin for USDT (available in Klever Exchange now!) but you want it for no higher than a specific price.
You want to be sure you’re not buying it for too much – too far from the market price – or, in case you are selling it, you don’t want to trade it for too little – you don’t want to sell it too cheap, right?
You want to buy it for not more than XX USDTs or, you don’t want to sell it for not less than X USDTs.
That’s one situation.
But, what if you want to buy or sell it fast and with the price that the market is offering right now, no matter what?
That’s another situation.
The first one we call “Limit Order” and the second “Market Order”.
Actually, once we understand the reason for the names, it becomes very self-explanatory.
“Limit” determines a limit of price. As for “Market”, it goes with what the market is saying in that period of time.
How does a Limit Order work?
As we previously explained, a Limit Order is made when you want to set a price limit for your selling/buying offer.
Let’s take a look at the graphic below.
You can see that the green line represents a buyer who does not want to buy above that price.
The red line, it represents a price set for the seller that does not wish to sell below that specific price.
And the white line represents the Market price in which the asset is placed in that period of time.
Now, let’s take a look at the Order board.
In this case, we have a ‘Buy’ Limit Order. So, the user here wants to buy KLV with USDT.
In the ‘Price’ box, the user must type the lowest price they want to trade their KLV for USDT, and in the ‘Amount’ box, it should be inserted the amount of KLV that will be purchased for that price.
If the Order was about selling, the process would be the same, however, instead of putting the lowest price, the user would insert the highest price that he wants to sell his coins.
When should you choose a Limit Order?
We already saw that Limit Orders are to set a limit price on what you want (selling or buying).
However, it’s good to remember that the market moves fast. Therefore, there is a possibility that the market operates in a different price range than what you thought in the first place.
In case that happens, you can lose the opportunity of buying/selling.
Another aspect you have to consider is that the market follows a “line” of priority. Whoever came first will be first served. So, there’s still another possibility where your order doesn’t get fulfilled.
So, now, you can ask me: but when to use Limit Orders then?
Limit Orders are very good for “hodlers” since they can wait for the pace of the market to change with time and therefore catch the best price for their trades.
As for traders, maybe the option of ‘Market Order’ would be best, once they keep up constantly with the market and wish to trade their coins in a fast and efficient way.
When it comes to an Exchange, be Klever
In conclusion, when it comes to trading, you should be sharp with the current market prices and think about the best strategy for you to negotiate in this big technological and virtual place of the bargain.
The Klever Exchange was already built to offer the best trading experience.
First of all, it is super fast: it has the possibility to fulfill 3 million transactions per second.
It’s also super safe: it has ironclad security.
And it has the best transaction fees in the market: you can calmly trade with the certainty of not wasting money in case you’re still learning.
So, whichever Order mode you choose, at the end of the day, just be Klever.