CoinDCX Crypto Futures Order Types: A Beginner’s Guide

Introduction

So, if you have reached this article, it is safe to assume that you know and understand the basics of Crypto Futures. You are now ready to jump into the world of crypto Futures trading but before that, you want to understand some of the finer nuances that you can use to understand. One such nuance is understanding the different order types you can use on the CoinDCX App when starting Crypto Futures trading.

When you place a trade, your instructions are recorded in the order book of the exchange. The order book meaning in crypto is simple it is a real-time list of buy and sell orders for a particular asset. Having a grasp of the order book in crypto helps traders navigate liquidity and price discovery more effectively.

The different order types you can use in crypto futures market orders, limit orders, and stop orders all interact with the order book in specific ways. Understanding when to use each will help you trade effectively and minimize losses.

Market Orders in Crypto Futures

What are Market Orders?

The first and the most commonly recognizable order type that one should know about when trading in the crypto Futures market is a market order. A market order is a form of order on an exchange that is utilized when there is a situation in which the trader wants to purchase or sell immediately at the best available price at that moment. Hence, this is a type of order book trading that is reserved for situations that require immediate action and timing, more than anything else. To fill these orders, there is an inherent need for liquidity in the market to be able to fill this order, and are typically executed based on the limit orders placed ahead of time. We will get to limit orders in just a while

When to use Market Orders?

1. Quick entry: A trader may want to create a position immediately because the available price looks favorable. In this case, they place a market order that matches the closest open limit order.
2. Quick exit: A trader may want to exit immediately without waiting for a better price.

On CoinDCX, a market-buy order is matched with the least expensive limit-sell order in the order book, while a market-sell order is matched with the closest limit-buy order.

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Fees & Caution with Market Orders

Now if you have understood the idea above, the next part of this equation is the fees that a trader is expected to pay. In the world of Crypto Futures trading, there are two kinds of fees that are typically charged, either maker fees or taker fees. Maker fees are generally lower than taker fees. This is because those traders who execute market orders in trading essentially take out liquidity from the market and thus are imposed taker fees. While on the flip side, maker fees are imposed on those traders who contribute to the liquidity in the market and hence are charged slightly less. 

Thus, since market orders take liquidity from the order book in crypto exchanges they incur taker fees, which are typically higher than maker fees. They may also lead to slippage, so they are best used in urgent situations.

Read more: Liquidation in Futures Trading

Limit Orders in Crypto Futures

What are Limit Orders?

The next type of order that traders can utilize is a limit order. As the name itself suggests, a limit order is a type of order that is used when a trader knows exactly at what price he or she wants to create a position in the market. Thus, if one uses a limit order, the order will be executed only when the market price of the contract meets the limit price specified by the trader. Thus, this allows buy orders to get filled below current market prices and sell orders to get filled above the current market price, when the market moves in the favored direction. 

Since these orders are dependent on market movement, these orders will typically not be executed immediately, and sometimes may never be executed. 

When to use Limit Orders?

Very simply, limit orders are used when the trader knows precisely at what price they want to create a position. If the price does not reach that level, the trade won’t be executed at all. So for example, if a trader wants to enter a BTC/USDT futures contract at $20,000 but the current market price is at $25,000, the trader will utilize a limit-buy order to place an order for $20,000 on the futures contract. This will not be executed unless the market corrects slightly and BTC/USDT futures contract price falls to $20,000.

Similarly on the other side, if a trader wants to create a short position in the market specifically at $20,000 and the current market price is at $18,000 – they can use a limit-sell order at $20,000 and it will not be executed unless and until the price of the BTC/USDT futures contract rises to touch $20,000.

Thus limit orders are very useful for traders who trade based on support and resistance levels based on technical analysis of price charts. They enable traders to put in place trades even when they are not always looking at the screen but know their order will be executed at the right time.

Fees pertaining to Limit Orders

Since limit orders are not immediately executed and thus essentially contribute to the liquidity of the market, these orders are charged a maker fee, which is typically lesser than a taker fee in the crypto futures trading market. Thus the fees charged for limit orders are less than fees charged for market orders.

Things to be careful about in Limit Orders

The only thing that one needs to be mindful of when using limit orders is that there is a high chance that these orders might never get executed. Thus, if one needs to take a position in the market, be it long or short – one will have to either adjust their limit orders or use a market order. 

Read more: 10 Reasons to choose Crypto Futures Trading on CoinDCX

Stop Orders in Crypto Futures

What are Stop Orders?

Stop orders are a special kind of order that is triggered when the market moves past a predetermined price level. Stop orders are typically used in the form of a stop-loss order, where a trader who has entered into a trade and created a position, does not want to incur more than a desired amount of loss. So one can easily calculate the dollar value of the loss and place a stop-loss order at the required price level to ensure that one bad trade does not result in the trader losing all one’s capital. There is another way of using a stop order, which we will get into detail in the next section.

There are two kinds of stop orders offered – one is a stop-market order and the other is a stop-limit order. A stop-market order is one which defines a stop level at a specific price and wants to exit at that price immediately. The other type, which is the stop-limit order, is a type where the trader is enabled to set a limit or a price range between which the trader is comfortable exiting the trade. 

Stop orders are activated when the stop price is either met or exceeded, at which point the order is actually placed into the order book of the exchange – after which it essentially becomes a limit or a market order. So it is slightly different in its functioning when compared to a typical limit or a market order. 

Read more: Guide to CoinDCX crypto futures app

When to use Stop Orders?

The common scenario of using a stop order is when one needs to put a stop-loss on an existing position in the market. As mentioned earlier, this is a situation where the trader does not want to lose more than a fixed amount of money on any single trade and that is when the trader puts a stop-loss order. The stop-loss order can be either a limit or a market order depending on the preference of the trader, but the objective is to limit the loss on a particular trade. 

The other scenario is where a trader can use a stop order is when one is trying to create a position at a price at which a normal limit order would not work. Say, for example, a trader is trying to go long on BTC/USDT only if it crosses $20,000 when the current market price is $18,000. In this situation, a market order would not help, since it would execute immediately and a limit order would be rejected because the desired price level hasn’t even been discovered in that timeframe. This also works on the short side, when a trader wishes to go short on BTC/USDT only if it breaks down below $15,000 when the current market price is $18,000. This is a situation where a stop-buy or a stop-sell order can be utilized depending on the requirement of the trader. 

Fees For Stop Orders

Fees pertaining to stop orders very simply depends on the type of stop order that is being utilized. If a trader is utilizing a stop-market order, then a taker fee will be charged while a stop-limit order will only be charged a maker fee. 

And as we have read before, a maker fee is less than a taker fee. 

Things to be careful about in Stop Orders

The only thing you need to be careful about while using stop orders is that you use the right type of stop order for the right kind of situation. If a wrong option of stop order is used, then it will result in it being executed in an incorrect way which could result in losses for the trader. 

Read more: Managing Risk in Crypto Futures

Conclusion

Every order, market, limit, or stop interacts with the order book in crypto differently. Together, they help traders execute diverse strategies in futures trading. Having a working knowledge of the order book meaning and how orders flow through it is crucial to manage risk, avoid unnecessary costs, and maximize gains.

Want to take your first order book trading with futures trade? Check out BTCUSDT perpetual futures on CoinDCX today!

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