When you want to trade cryptocurrency, the first thing you do is place an order. Orders are instructions you send to exchanges to buy or sell a crypto asset. For example, the order you send could be to trade the crypto instantly or hold on until a specific condition is met.

Understanding the right orders to use will help you to be more dynamic with trade execution, so here are five of the most popular trade orders used in crypto trading and how they work.

1. Market Order

A market order is a command that automatically executes at the best market price. It is usually executed instantly or at the next best opportunity. The current market rate usually determines the price the order initiates in the order book. An order book displays the demand and supply activities of a particular cryptocurrency. It is publicly available to users on an exchange to see. The order book data changes as traders add, withdraw, and modify orders.

A trader executing a market order only needs to state the amount of an asset they would like to buy or sell. The trader doesn't need to specify the price as the order is executed based on the best market rate.

Let's say you want to buy 5 LTC with the price of 1 LTC being $60; you pay $300, and your trade executes immediately. However, if you are not comfortable buying LTC at that price ($60) and want a lower price, say $50 for 1 LTC, you can create a limit order for a purchase of LTC when the price gets to $50. So now, let's look at how a limit order works.

2. Limit Order

An order to buy or sell a cryptocurrency asset at a predetermined price is known as a limit order. However, limit orders are not guaranteed to execute because they only trigger if the price reaches the point where the limit is set.

Limit orders are useful when you aren't in a rush to execute your trade or are keen to execute your trades at a particular price. They ensure your trades execute at your desired price by preventing you from paying more or receiving less than the specified price.

A limit order can be a buy or sell order. Thus, we have buy limit orders and sell limit orders. For example, you can set a buy limit order to buy $2,000 worth of ether when the price drops to $1,500. Likewise, with a sell limit order, you can choose to sell the same crypto when the price rises to $2,000. All you need to do is to place your order and wait for the price to trigger them. However, there is no assurance that the price will reach these levels, which means that the orders may not be triggered.

Other order types can also be categorized into market order, limit order, or both based on how they are executed. For example, those executed instantly or almost instantly are market orders, while orders that require a predetermined price to be hit are limit orders.

3. Stop Order

A stop order buys or sells a crypto asset once the price reaches the stop price. In this case, it becomes a market order filled at the next available price to lock in profit.

Let's say the price of a crypto token keeps dropping, and you have a sell-stop order to limit your losses. Once the price gets to the sell stop price, it will automatically trigger the order and sell the position at the next available price. This will prevent you from making more losses by taking you out of the trade before it drops further.

The risk of the stop market order is that the next available price may be lower (in the case of a sell stop) or higher (in the case of a buy stop) than what you anticipated due to a gap in the market price. One of the ways to prevent this is to use a stop-limit order. A stop-limit order is a little more complex than a stop-market order. Let's take a look at how it works.

4. Stop-Limit Order

As the name suggests, a stop-limit order combines stop and limit orders. It executes limit orders at the predetermined price when the market reaches the stop price.

When using a stop-limit order, you must specify a stop price and a limit price. The stop price triggers the limit price when the price gets to the stop price. For example, let's assume that one ether is $1,300, and you want to buy the token when it shows bullish momentum. You can set your stop-limit order; in this case, a buy-stop limit order, with the stop price at $1,330 and a limit price at $1,360. If the price moves above $1,330 (the stop price), the order will be triggered, creating a limit order.

Buy stop-limit orders are placed above the current market price, while sell-stop limit orders are below the market price. The order is suitable for traders that want protection against price volatility.

5. Trailing Stop

A trailing stop helps you lock in your profit and limit your losses when trading. It is usually set at a trailing amount or percentage from the market price. As the price moves, the trailing stop price also moves by the predetermined trailing percentage or amount. If the price moves back, the trailing stop does not move, as it only moves in one direction. A trailing stop can be a limit order or a market order.

If you add a 10% trailing stop loss to a long position, your profit will be locked in if the price drops 10% from its peak after executing the buy order.

What, then, is the difference between a trailing stop and a stop loss? A stop-loss order helps you reduce losses and is usually set manually. A trailing stop, on the other hand, locks in the profit while reducing the losses. It is more flexible than a stop-loss and tracks market prices automatically.

You Can Now Be More Dynamic With Your Orders

As an active crypto trader or one aspiring to invest in crypto, you need to get acquainted with these order types and understand how they work. They will help you be more dynamic with your orders in different market situations. You won't always have to monitor the market to execute a trade at the desired price since you can give instructions through orders.