Understanding Different Types of Orders

Understanding different types of orders on the Huobi spot trading market is the first step to becoming a successful trader. Orders are the trader’s tools. It may not be necessary to use all of them, but basic knowledge of what the different types of orders do will help us understand what kinds of actions are possible. A more experienced trader can use them individually or in a combination according to their trading strategy.  

The different orders can seem complicated at first glance, but understanding their specific function and purpose will clarify the confusion. It is like seeing a pen or a hammer for the first time; it might make sense only after seeing it in use first.  

Huobi Global’s spot trading market has four order types. After reading this material, a reader will have a basic understanding of their logic and principal uses. Someone interested in futures can also check the Types of Orders on Huobi Futures article. 

Figure 1: Huobi Spot Trading Market Screen |
https://www.huobi.com/en-us/exchange/

Limit order 

A limit order allows users to place an order at a specific or better price. Limit orders aren’t instant orders; instead, the exchange places them in an order book, and once the price gets to the right level, the order gets triggered. This way, the trader becomes a market maker, which means he does not have to pay fees. A trader can set the limit order lower or higher than the current price, and once the market price reaches the limit price, the trade gets executed automatically.  

A limit order can be helpful in a situation where the current price is not ideal, and there is a need to buy at a lower price or sell at a higher price. A trader should use a limit order when he is not in a hurry to buy or sell the token. He can pursue a better price by reading a chart and setting the limit order to possible price levels called support and resistance levels. However, the price may not reach the intended price, and the trader may miss out on the trading opportunity. Also, the limit order might not even get triggered at desired price level because of a lack of bids to activate the order. 

Market order 

A market order is an immediate order to buy or sell an asset at best available current price. The trade will be completed close to the initial price and nearly instantly. There may be a price difference if there is a lack of liquidity, which can be the case with smaller tokens. Marker orders are instant, which means that they do not go through an order book. This means the trader becomes a market taker and has to pay fees for the trade. Market orders are the main alternatives to limit orders.  

A market order can be reasoned choice in immediate need to open or close a trade. For example, if a user receives positive news about a token and assumes it is going up, then it would be logical to hurry and open the trade with the current market price. On the other hand, in a normal market condition, it is better to use a limit order because it does not have fees and enables the trader to get a better possible opening price for the trade.  

Stop-Limit order 

A stop-limit order consists of a stop price and a limit price. The stop price is the price that triggers the limit order, and the limit price is the price of that limit order. So, when the price reaches the specified stop price, an exchange places the limit order instantly in the order book. Stop-limit combines two different order types into one; a stop-loss order and a limit order. This enables a trader to decide on comfortable profit or loss levels that sustain their trading strategy.  

Traders use stop-limit orders strategically in support and resistance levels that they find using technical analysis. The order can be used in both directions. For example, a trader can set a sell stop-limit order below a support level to mitigate any possible further drop in the price (also known as a stop-loss). On the other hand, setting a buy stop-limit above the resistance level can allow the trader to benefit from a breakout to the upside (also known as a take-profit). However, there is also a chance that the trade does not get executed. This is because the limit order gets filled only when it reaches the specified or better price. But the order book may not have a paired offer available for that exchange especially with lower-cap tokens and in times of high volatility.  

Trigger order  

A trigger order is a pre-set order that helps the trader automate token entries and exits. In a trigger order, the trader’s order price gets placed automatically once the market price reaches the trigger price. The order created by a trigger order can be either a limit order or a market order. If a limit order is used, then the trigger order behaves like a stop-limit order. 

Traders should use trigger order when they have a hypothesis about future price movements, and they want to take a chance on that possibility. In addition, they should use it to prevent themselves from a big loss and unnecessary risk – the trigger price can be set on a support level that has a potential big drop below it. Nevertheless, a trigger order differs from a regular stop order in that it does not close the margins or positions.  

Trigger orders are not available for margin trades. 


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