Be it stock market, bond market, financial derivatives or cryptocurrency exchanges, orders are the foundation of any trade that happens on trading platforms. Order is a contract to buy or sell any asset on trading venues. Such contracts can be simple or complicated and can be sent through brokers or direct market access. Crypto derivatives exchange provider provides different types of orders to the traders. Let us deep dive these in detail:
User inputs: Quantity
Market order example
Quantity = 50 contracts
Direction = Buy
A buy order for 50 contracts will be sent to the order book.
The trader can opt-in for the limit order when he/she is very particular about the price of the cryptocurrency. It is defined by the limit price in which a buyer (limit buy price) and the seller (limit sell price) will set below and above the market price respectively. The order is executed when the market price reaches the limit set by the traders. If the order is not executed, then the limit order is added to the order book.
Quantity = 10 Contracts
Limit Price = 200
Direction = Buy
A bid of 10 contracts will be placed in the market with a Limit price of 200.
Stop order is carried out only when the “stop level” has been reached. The trader has to input two prices for a stop order namely stop price and the limit price. When the market price reaches the stop price, the stop order is triggered. Once the stop order is triggered, the trade is executed at the limit price. It represents the worst price at which the trader’s order can be matched.
Stop order is used as a risk management strategy to limit the losses as well as an automatic tool to take a position in the market at the desired entry point without manual intervention.
Example – Stop Sell
The current price of a futures contract is $10,000. Mr. A has a long futures position and wishes to limit his loss if the price declines. So he submits a stop sell order having a stop price of $9500 and a limit price of $9000. Due to COVID-19, the futures price falls to $9500. This activates the stop sell order trigger at $9000. The futures position will be cleared (sold) at a price of $9000 or higher if there is any buyer for it.
Example – Stop Buy
The current price of a futures contract is $10,000. Mr. A has a long futures position and hopes that if the price increases to $10100, it can touch $11000. So he submits a stop buy order having a stop price of $10100 and a limit price of $10200. Due to the lifting of lockdown in the COVID-19 situation, the futures price rise to $10100. This activates the stop buy order to trigger at $10200. The futures position will be cleared (buy) at a price of $10200 or lower if there is any seller for it.
Take Profit Orders
Take Profit Orders and Stop Order goes hand in hand with the only difference being in the time of execution. Take Profit Orders are executed when the price moves in a profit-making direction, unlike stop order which is executed when the price moves in an unfavorable direction. There are two types of take profit orders:
Take Profit Market Order: In this type, once the market reaches the trigger point, a market order will be placed.
Take Profit Limit Order: In this type, once the market reaches the trigger point, the limit order will be placed.
Quantity = 50 Contracts
Trigger Price = 200
Limit Price = 190
Trigger = Mark
Direction = Sell
In this example, the trader has opted for Take Profit Limit Sell Order where Mark price will act as a trigger. If the mark price reaches 200, then a limit order will be placed for 50 contracts at the limit price of 190.
As the name suggests, bracket order enables the trader to “bracket” any given order with two opposite-side orders i.e. take profit and stop-loss order. The take profit order aims to maximize the profits and the stop-loss order aims to minimize the losses of the trader. When any one of these orders gets executed, the other order will automatically get canceled. It can be simultaneously placed along with the buy or sell order.
Hidden order is a limit order which cannot be seen on the public order book. The traders opt for hidden orders when they are not willing to inform the market of their trading moves.
An iceberg order is a hidden order with a flexibility to display a certain portion of the public order book. This helps the trader to look indifferent from their fellow traders.
Post Only Order
Post Only Orders are limit orders that are submitted in the order book and are not matched with a pre-existing order. Such orders never take liquidity. The traders opt for such an order to gain market rebate.
Immediate or Cancel Order (IOC)
When the trader opts for immediate or cancel order, then it will execute at the price and quantity available. The remaining order for which the price and quantity did not match will not enter the book. If there is no quantity present for the given price level, then the order will be canceled immediately.
Fill or Kill Order (FOK)
A Fill or Kill Order is immediately executed in full or otherwise is killed. There are no middle grounds of partial filling. Such orders can be filled from a single market or multiple market orders. FOK orders last only for a couple of seconds since they have to potential to disrupt the price of the cryptocurrency.
Good-till-canceled order (GTC)
The trader opts for Good-till-cancelled order when he wants to buy or sell the cryptocurrency at a particular price and remains active until it is manually canceled. These types of orders are used as an option to day orders where the expiry of the order takes place at the end of the trading day.
Well, placing orders on the exchange can be a troublesome process. So it is very important to have a sound knowledge about different types of orders that can be carried out on the trading platform.
EspayDerivative System is an order-driven market system that has a pre-configured set of orders. The platform ensures that every trader gets complete authority and a familiar environment to implement their hedging strategies.
Well, if you are wondering to have your very own crypto derivative software, Espay has got your back. We are a derivative exchange software development firm. Espay derivative exchange software provides extensive functionality for trading. It is a cost-effective, real-time data analysis application that meets the compliance needs of the most demanding financial institutions. Are you ready to launch your own white label derivative exchange software? Your crypto derivative solution is just a text away!