Crypto Futures Order Types — What are they and How Do They Work?
Typically, Crypto Futures trading is composed of paired buy and sell orders, which together form a single trade. A buy order is used to enter the trade, while a sell order is used to exit. Essentially, when you enter a trade with a buy order, you must exit with a sell order, and vice versa if you enter with a sell order.
In a simple futures trade, if you anticipate a price increase, you would enter the trade with a buy order and exit with a sell order. Conversely, if prices are expected to decline, you would enter with a sell order and exit with a buy order.
For traders on LBank Futures, utilizing tools such as market orders, limit orders, and stop orders can enhance their trading experience. A better understanding of the right trade orders to use is crucial to trade execution. Thus enabling traders to be more adaptable to changing market conditions. In order to help you make informed decisions, let’s explore three of the most popular trade orders used in crypto trading and how they work:
Market Orders
This is the most basic crypto futures order type any trader should get familiar with. Market orders are placed to buy or sell a contract at the existing best price in the market. With a market order, a trader simply needs to specify the amount of the asset they wish to buy or sell, without the need to specify a particular price. Most market orders get filled in active markets but at times with a deviation in the intended price.
When placing a market order, a trader instructs the exchange platform to execute the order at the current market price. Although this type of order is straightforward, its simplicity can be its downfall. Since it doesn’t specify a timeframe for execution, there’s no guarantee that the order will be filled promptly, especially during periods of low liquidity.
In some cases, it may take hours to fill the order. However, in the fast-paced crypto futures market, these orders usually take only minutes, if not seconds.
Variants of the market order include Market On Close (MOC), Market On Opening (MOO), and Market If Touched (MIT), among others. MOC and MOO orders execute at the market’s opening and closing, respectively. Meanwhile, MIT orders are related to limit orders, which we’ll discuss shortly. They’re orders to be filled when an asset price reaches a certain level and continues to be filled as the price moves away from that “limit” price.
Limit Orders
Limit orders are placed to buy or sell a contract at a specified price or a better price. The purpose of a limit order is to wait for the market price to hit a predetermined target point before buying or selling.
However, it’s important to note that market conditions and the chosen limit price may cause the order to go unfilled. When you place a limit order and there isn’t enough demand to match it with an existing order, your order is added to the order book. Limit orders are always used to control the worst possible price at which your order can be matched.
This type of order can be set to maker-only and/or reduce-only, giving you even more control over your trades. It’s important to note that when setting a limit price, it must be within a certain percentage of the mark price. If the price you set crosses the spread and falls outside of the mark price, the limit order will be rejected.
Also, keep in mind that margin is required to place this type of order, and a margin check will be conducted at the time of order placement.
Stop Orders
Similar to market orders, stop orders aim to buy or sell securities at the best available price. However, unlike market orders, stop orders are executed only when the market reaches a specific price, making them a useful tool for managing risk and entering positions.
Stop orders come in various forms, including stop loss orders, which establish a boundary against loss on either a long or short position. When placing a buy stop, the trader instructs the broker to act when a price above the current one is attained. Conversely, when placing a sell stop, the trader sets a sell price below the current price.
More advanced versions of stop orders include stop limit orders and stop close orders. Stop limit orders require the designation of two prices: the first is determined in the same way as the basic stop order, while the second is a designated limit price. When the market price aligns with the stop price, the stop limit order becomes a limit order, which can be filled only at the designated price or a better one.
In essence, a stop limit order is a combination of a stop order and a limit order, executed only when the market touches the specified price. This order ensures that the trader gets filled at the chosen or a better price, just like a limit order.
Wrapping Up
Trading orders can be powerful tools for buying or selling coins at specific prices. Among the popular types of orders are market orders, limit orders, and stop orders — each with its unique strengths and weaknesses.
Market orders are useful when you need to execute a trade quickly at the best available price, while limit orders are ideal when you want to set a specific price at which to buy or sell a coin. On the other hand, stop orders can be helpful in limiting potential losses or maximizing unrealized gains, as they are executed only when the market reaches a specific price level.
However, it’s essential to understand the nuances of each order type and how they fit into your overall portfolio and trading strategy before choosing one. A well-informed decision can help you achieve your trading goals more efficiently while minimizing risks.
Disclaimer: The opinions expressed in this blog are solely those of the writer and not of this platform.
