Trading is a major part of the cryptocurrency industry. A good trader needs to know about trading styles and terms, and understand technical and fundamental analysis and many other things. Today we will start with the basics and tell you about some common trading terms including limit orders, stop-loss, bids, etc.
A currency pair is simply two cryptocurrencies which you are going to trade for each other. For example, an XRP/BTC pair means that you will buy XRP for Bitcoin. It also shows how much BTC you need to buy this specific amount of XRP.
Bid, ask and spread
Bid is the price which you are ready to pay to buy crypto. Ask is the price of an asset for which the seller is ready to sell. The difference between these two prices is called Spread.
To put it simply, an exchange is a market where a seller asks for a price and a buyer proposes another price. They try to barter and agree on a price to make a deal. A purchase happens when the bid and ask are equal.
An order book is a list of sell and buy orders. It looks like a table which is updated in real time. To make an exchange transaction a trader places an order with certain transaction parameters: buy or sell, a specific amount and a desired price. The transaction is executed when the exchange system detects a counter order that fully meets the requirements of your order. If there is no order which meets your requirements it enters into the order book.
Short and Long positions
If you are going long it means that you expect that the price will increase and are buying crypto.
A short position means that you are selling an asset and waiting for the price to decrease. Going short is only possible when using leverage.
An Order is an instruction to an exchange platform to buy or sell cryptocurrency under certain conditions. There are several types of orders: market and pending.
A Market Order will be instantly fulfilled at whatever price is available. The only thing you need to set is the amount of bitcoin or other crypto you wish to buy or sell. An exchange will execute your order immediately.
Let’s say you want to buy 4 BTC, the exchange will be looking for sellers with the cheapest prices currently available. Your order can be split between several sellers, and as a result, you can end up buying each bitcoin at a different price.
Pending orders allow you to set orders that will be activated once your specified price level is reached. There are several types: buy/sell stop and limit order.
Buy Stop and Sell Stop
A Buy Stop is a buy order at a price that is higher than the current market price. The trader uses this order if he/she expects that the rising price will continue to grow after the purchase.
As soon as the price of the last transaction becomes equal or exceeds the price in a Buy Stop order, it immediately turns into a market buy order. To trigger a Buy Stop order, it is necessary that the Ask price be equal to or exceed the price in this order.
A Sell Stop is used when a trader hopes that a falling price will continue to fall. A Sell Stop is set at a price that is lower than the current market price. It works on the same principles as a Buy Stop
Limit Order and Buy/Sell Limit
A Limit Order is a request to buy or sell a specific amount of an asset at a specified price. For example, a trader bought 100 tokens for $40 each and expects that the coin he bought will increase to $45. He wants to take profit at the $43 level and sets a limit order to sell these 100 tokens. The order will be executed when the price achieves $43 and the trader will make a profit.
A Buy Limit sets a price below the current market price. The trader uses it hoping that the falling price will change its trend and start to grow.
A Sell Limit is a way of selling at a certain price higher than the market price. Traders use this instrument when they expect a growing price to fall after a certain price point.
You set a specific price of an asset you want to sell in case the price drops dramatically. This is used to minimize possible losses. It works as a market order and says the following to the exchange platform: If the price drops to $9000 I will sell my BTC because I think that the price will continue to fall.