Basic Trading Order Types

Trading Crypto Order Types 101

1. What are order types in cryptocurrency trading?

Order types are instructions given to a cryptocurrency exchange that specify how you want to buy or sell cryptocurrencies. These instructions dictate the conditions under which your trade will be executed.

2. What is the most common order type for buying crypto?

The most common order type for buying crypto is the market order, which instructs the exchange to execute the trade immediately at the current market price.

3. Are there other advanced order types in cryptocurrency trading?

Yes, Gemini offers advanced order types such as fill-or-kill, immediate-or-cancel, and post-only orders with our Advanced Trading Mode. These cater to more specific trading strategies and requirements.

Trading Basics #1: Market Order

A market order is a command to buy or sell an asset at the price currently available on the market, and is the most basic type of trading order. If you’re placing a trade yourself via an online platform, hitting the buy/sell button generally fulfills (executes) an order immediately. A market buy order will execute at the nearest ask price (what someone is willing to sell for) and a market sell order will execute at the nearest bid price (what someone is willing to buy for).

Traders typically use market orders when they want to buy or sell an asset immediately, either to avoid missing a potentially profitable move or to cut their losses. Market orders guarantee that a trader will enter or exit a position as quickly as possible, but they do not guarantee a price. Market orders are best for very liquid, frequently traded assets such as large-cap stocks, exchange-traded funds (ETFs), or well-established cryptocurrencies, which are typically bought and sold either at or close to an investor’s desired price. In contrast, market orders for traded assets that aren’t bought or sold as often may take longer to fulfill, which means that the price at execution can be far from an investor’s desired price.

Trading Basics #2: Limit Order

A limit order is a command to buy or sell an asset at a specific price — or better if possible. A buy-limit order is transacted at the limit price or lower, while a sell-limit order is executed at the limit price or higher. However, limit orders are not guaranteed to execute. A limit order will only be filled if the market price of the asset reaches the limit price. Although limit orders don’t guarantee that your order will be fulfilled, they are useful because they can ensure that you do not pay more or receive less than a specific set price.

Limit orders also are useful if you’re not in a rush or are not actively trading. For example, you can specify that you want to buy 100 shares of a particular company’s stock when its price falls to $10 USD, or lower. Or, you can place an order to sell 100 coins of a particular cryptocurrency when its price climbs higher than $10 in order to lock in profits — also called a take-profit order — after having purchased that cryptocurrency for a lesser price.

Additional Order Types in Crypto

In addition to regular buy-and-sell limit orders, there are also buy-and-sell stop-limit orders, which are more conditional as well as more sophisticated:

• Buy Stop-Limit Order: A stop-limit order combines the characteristics of stop and limit orders and gives the trader more control over the execution of the trade, though it isn’t guaranteed to be executed. A stop-limit order requires setting a stop price (the start of the target price for a trade), a limit price (the end of the target price of the trade), and a timeframe for execution. After the desired asset reaches the indicated stop price, the limit order kicks in, and the order is executed only when the asset price is at or better than the specified limit price.

• Sell Stop-Limit Order: A sell stop-limit order is the opposite of a buy stop-limit order. In this case, you may want to sell an asset after it moves below a certain level to minimize your risk in a trade. Unlike buy stop-limit orders, which are placed above market price at the time of the order, sell stop-limit orders are placed below market price at the time of the order.

Trading Basics #3: Stop-Loss Order

With a stop-loss order, you can instruct your trading platform or broker to sell a security if its price falls below a certain amount, which can help guard against unexpected losses. For instance, you can program a sale of a particular company’s stock after it falls in value from your original purchase price, which would minimize your loss.

There are two main types of stop-loss orders:

• Stop-Loss Limit: With a regular stop-loss order, your trading platform or broker will automatically sell your asset once its price reaches your specified level. With a stop-loss limit order, the system will automatically convert the order to a sell when your specified stop (or trigger) price is reached, but will only sell at the limit price you specified. This type of order gives you a chance to avoid a loss if prices drop suddenly, triggering a stop-loss, but then recover quickly.

• Trailing-Stop Order: A trailing-stop order is a modification of a regular stop order. For this order, you’d set the trailing amount as a percentage of how much you could bear to lose. A sell trailing-stop order sets the stop price at an amount fixed below the market price with a trailing amount attached. As a price rises in the market, the stop price rises accordingly by the trailing amount. But if the stock price falls, then the stop loss price wouldn't change; instead, the order would revert to a market order once the stop price is reached.

Trailing stop-loss orders help you lock in profits as, and if, a trade moves in your favor. That percentage stays with your asset and “trails” its price so that if it gains, you can lock in profits as it does, but if it declines, then you can limit your losses to your stated parameters.

For instance, say you purchase some cryptocurrency for $500 and set a trailing stop-order at 5% to minimize your losses in the event that the price falls instead of rises. In this scenario, your crypto trading platform will execute a market sell order if the price falls to $475. But let’s say your crypto suddenly rallies to $800. At this point, if it reverses course and slips by 5%, you will exit the trade at $760 instead of $475. Had you placed a regular stop-loss instead of a trailing-stop order, the system would have taken you off the trade at $475.

Crypto and Stock Trading Basics: A Note on Fees

Whether you're trading via a broker or an online trading platform, you should be fully aware of any associated trading fees. Each brokerage and cryptocurrency exchange has its own rules, and fees will vary based on the broker, trading platform, and even potentially your monthly trading volume, so it’s important to always read the fine print.

Learn more about Gemini’s fees here.