How to Trade Cryptocurrencies: Order Types That Matter

The order book, in one paragraph

Every pair has a list of people willing to buy at various prices and a list willing to sell.
The highest bid and the lowest ask are the top of the book, and the gap between them is the
spread. Your order either takes what is there or joins the queue waiting.

That distinction is the whole of order types. Taking is immediate and pays whatever is
available. Joining the queue is patient and pays your price, if the market comes to you. Every
order type is a variation on which of those you are doing.

Slippage is the cost nobody budgets for

The price on the screen is the top of the book, and the top of the book holds a limited
quantity. An order larger than that quantity eats into the next level, and the next, filling at
progressively worse prices. The average you paid can be meaningfully worse than the number you
clicked on.

On the largest pairs this is negligible for ordinary sizes. On a thin pair it is the dominant
cost, larger than every fee combined, and it is why a limit order is the default anywhere
outside the top few markets.

Stops, and what they actually promise

A stop-loss sits dormant until the price reaches a level, then fires an order. If it fires a market order, which is the usual configuration, the fill happens at whatever is available at
that moment, which during a sharp move can be far below the level you set.

So a stop protects against a gradual decline and not against a sudden one. That is worth
knowing before relying on it, because the scenario people imagine when placing a stop is
precisely the scenario in which it performs worst.

Fees are tiered, and the tier is the fee

Most venues charge less for orders that add liquidity to the book than for orders that remove
it. A limit order that rests before filling frequently pays a fraction of what a market order
pays, and at some venues it pays nothing at all. For anyone trading with any regularity that
difference outweighs the headline fee comparison entirely.

Volume tiers layer on top and matter less than people expect, because reaching a meaningful
tier requires turnover most individuals never approach. The maker discount is available
immediately, to everyone, and it is claimed by changing one setting on the order ticket.

The pair you choose is a decision you did not know you made

Buying the same asset through two different pairs can produce two different outcomes, and the
interface presents the choice as a formality. A pair quoted against a major stablecoin usually
has the deepest book. The same asset quoted against a smaller stablecoin or a second crypto
asset often has a fraction of the depth, which means a wider spread and more slippage on
identical size.

Going through an intermediate asset compounds it. Selling A for B and then B for C crosses two
spreads and pays two fees, and if B moves in between it adds an exposure nobody intended to
take. Where a direct pair exists it is almost always cheaper, even when the headline rate looks
worse.

The check takes seconds and is worth making a habit. Open the order book for the pair before
placing anything and look at how much sits within a percent of the current price. If the answer
is less than the order you were about to place, the price you see is not the price you will get,
and a different pair on the same platform may fix it entirely.

Two things worth doing before the first order

Check the minimum order size for the pair, because a rejected order at a moment you wanted to
act is a needlessly annoying way to learn it. And place one small limit order deliberately
away from the market, to see how a resting order looks in the interface before you have money
depending on reading it correctly.

Both take a couple of minutes and remove the two most common sources of confusion in the first
week. Neither is about strategy, which is the recurring theme: the early losses are procedural
rather than analytical.