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Buy, sell and trade crypto as a maker or a taker

Traders that come from other asset classes are familiar with order types, order books, and the various mechanics of executing trades. Give or take, these vary from market to market depending on the asset class. But in general, many order types are pretty similar.

If your first trading experience is with crypto, you will be faced with an array of graphics, blinking numbers, and numerous choices.

Everything you see has a purpose. With trading, precision is required for the system to know what you want to do and match your instructions with others.

Straight crypto trading in BTC, ETH, XRP, and others has similar order types to traditional equities. Crypto futures and options order types will draw from traditional futures and options markets.

Trading orders have some important elements to them. There are some you should be aware of but use sparingly. Others will be your everyday order types.

By the time you finish reading this, you should have a good overview of what you’re looking at.

Five physical Bitcoins in a V formation hovering over a digital screen with asset prices

The cryptocurrency exchange order book

If you’re looking at an order book, what you see is a bunch of orders on the left and right. The left is the buy-side, and the right is the sell-side. Like the old equity tickets, these might be colored blue for buy and pink for sell.

Some exchanges show the order book vertically where sellers are on top in red, and buyers are below in green.

The numbers you see will include the number of units at a given price and the quantity of orders at that price.

Each price point has a specific breakdown of buyers and sellers listed in FIFO order. FIFO means first in first out, where order placement and fill priority is based on the time the order was placed and the price.

Each order will have a volume amount, price and may have some special instructions.

Buy, Sell and Short Sell orders

Most crypto exchange orders will be buy and sell orders to open or close a trade. Some exchanges have other order classification like “take profit orders,” which describes buy and sell orders to close an existing transaction.

The other order type used to open a transaction is a short sale. A short sale has a couple of nuances. One is that short sales are typically executed from a separate margin account. The second nuance is that you have to borrow the crypto in question to sell it short.

Not all exchanges provide short selling.

If you are breaking your order up into smaller amounts and placing them at different price points, this is referred to as scaling. In general, a scale order is technically several smaller individual orders with different prices and or different sizes.

Stop Loss orders

Stop-loss points are considered a good risk management practice. These orders rest inside the system, and only become live if the stop-loss price is triggered or exceeded.

Stop-loss orders can be entered on the sell-side if you are long, or the buy-side to cover short sales. Trailing stops are designed to move stop-loss orders automatically with the market price as it rises if you are long.

Stops can also be used strategically as an early warning system, letting you know when your stop is triggered. Instead of putting the whole position there, a trader might put a small portion instead.

The Volume

The volume of the trade is specified as 1 BTC or 3 ETH or some fraction of the cryptocurrency you are trading.

If iceberg orders are available, they are used to show only a portion of your total volume to hide your buy or sell volume. The iceberg simply reloads until the order is complete, cancelled or changed.

The Price

Adding the price is amongst the simplest and most important elements of your trade. Price can be expressed as a limit order with a specific price, or “at the market” with a market order. That’s the simple part.

The important part is recognizing that market orders should be used sparingly in volatile assets like cryptocurrencies. Market orders should be avoided in periods of significant market flux, especially where volumes are likely low.

Stop-loss orders, in particular, should be entered with limit orders. Stop-loss market orders are often triggered in volatile periods where volumes are thin, resulting in disastrous executions and unnecessary losses.

Always specify a limit price.

Are you a maker or a taker? 

You will notice that some, but not all exchanges have maker and taker fees. A maker is a liquidity provider with a buy or sell order displayed in the order book. A taker is a limit or market order that buys the offer or sells the bid and removes liquidity provided by makers.

There are different maker/taker fee structures based on the exchange, liquidity pool, and asset class. Many exchanges will have fees for both the maker and taker, where the maker pays a lower fee than the taker. This is to encourage liquidity.

In another model, like on the Toronto Stock Exchange, makers receive a credit, and takers pay a fee. The exchange receives the spread between the two.

Your order duration: Day, Open, GTC and GTD

Every order also has a duration to it. In traditional markets where the market closes each day and on the weekend, orders can be day, GTC, or GTD.

A day order is good for that trading session.

GTC means good till cancelled or can also be referred to as Open.

GTD means good till date where a specific date when the order expires and is cancelled.

All of these orders remain live for the period specified or until cancelled, CFO’d, or executed.

Depending on your exchange, there may be some or none of these.

Special terms orders

Special terms orders have a place in the market, but they are not used extensively. Generally speaking, special terms orders are used primarily by traders servicing larger, more sophisticated clients. They represent a minority of order types in any market assuming they are available.

The Fill or Kill order is the least common. The FOK order means it’s all filled at that moment at that price, or killed.

The Immediate or Cancel order, or IOC, means that when the order is executed, it is either filled or the unfilled balance is immediately cancelled.

All or None orders or AON are orders that require the entire amount to be filled, or it will sit in the book until filled or cancelled.

Changing order details

On a traditional trading desk, orders are frequently adjusted, changed, or cancelled. These are done with CFOs and CXLs.

Cancelling an order is straightforward. CFOs or cancel first order is what happens when the price, volume, or terms of the order are changed for some reason.

The order would sound like this.

Buy 1000 XRP at .30 CFO .29

This means the order’s price has been changed to 30 cents, cancelling the previous order at 29 cents.

Be precise with your crypto orders

Looking at a trading screen can be consuming. There is lots of information designed to provide insights into what is taking place in the market.

Like ordering goods on an e-commerce site, you should always be precise in your orders. That means always using a limit order. And that should be applied to stop-loss orders in particular whether you put your entire position there or only a small portion as a warning indicator.

Special terms orders like various technical analysis formations have interesting sounding names. Most of these, where available are unnecessary, although it’s a good idea to know what they are.

As the crypto markets continue to mature, more elements from the traditional market will be adapted. There will be more leverage in the form of margin accounts. More margin accounts will mean short selling will become more prevalent. Over time, as institutional involvement grows, order types like crossing will become common as well.

If you are following a solid risk management approach to your trading, simplicity should be the focus. Adding unnecessary complexity to your execution will mean distractions and extra decisions with little overall benefit.

 

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