Cryptocurrency Exchange Platform Development: Understanding Order Types

An order is an instruction that drives the process to buy and sell the assets, thus paramount for any trade. When it comes to cryptocurrency exchange platform development, the order defines how the trading process will be navigated. It may comprise quantity, price, validity and other values.

Orders can be of three types, including:

Open order

It is the one that is yet to be matched with another participant.

Partially-Filled Order

A partially-filled order is the one wherein partial order quantity matches with another participant. For example, if an order of 100 quantities of a given cryptocurrency at a price of $10 matches at the same price or better for only 80 quantities, then it’s a partially-filled order. The remaining 20 quantities will keep showing up in the order book and will be matched with another participant.

Filled Order

An order that has been successfully matched with another participant is referred to as a filled order.

Before we gain insight into the types of orders for cryptocurrency trading, let us understand how orders are matched.

The Logic behind Order Matching

The two things to bear in mind to comprehend the logic behind order matching include:

The exchange always ensures that the participants get a price better than or equal to that specified in the order. This means that the buyer gets a price less than or equal to the specified price and the seller gets a price greater than or equal to the price specified in the order.

The prioritization of orders on an exchange pivots around the following:

• Price: the better price is executed first (lowest in case of sellers and highest in case of buyers).
• Time of order placement: if two orders with the same price are placed in an exchange, the order that was placed first will be executed first.

Types of Orders

When an order is placed by a participant, the order type is generally specified as a parameter. If you are venturing into cryptocurrency exchange platform development, understanding different types of orders can help you zero in on the right one.

Market Order

It is an order wherein the quantity desired is paramount and the price is of secondary importance. Thus, the input parameter for the market order is the quantity rather than the price.

Limit Order

Limit order takes both price and quantity as its parameters. The matching engine ensures that the participant gets a price better than or equal to that specified in the order.

For example, a buy order of 100 quantities at the price of $10 will only be matched with sell orders at price less than or equal to $10 (the order with the least amount will be deemed the best match). Similarly, a sell order of 100 quantities at the price of $10 will only be matched with buy orders at price greater than or equal to $10 (the order with the maximum amount will be considered the best match).

Stop Limit Order

A stop limit order includes a quantity and two prices – trigger price and limit price, as its parameters. The order is not actually placed in the exchange or matching engine until the current market price is either:

• Less than the trigger price in case of a sell order, or
• Greater than the trigger price in case of a buy order

Once any of the above-mentioned condition is met, the order simply behaves as a limit order. Conversely, if the trigger condition already exists in the exchange, the order gets placed right away.

For example, in case of stop limit sell order with a trigger price of $10, limit price of $8 and the last traded price of $12, the order will only be activated when the last traded price goes below $10. The stop limit order then behaves as a limit order with price $8.

Stop Market Order

A stop market order (or simply a stop order) includes quantity and trigger price as its parameters. The order does not get placed in the exchange or matching engine until the current market price is either:

• Less than the trigger price in case of a sell order, or
• Greater than the trigger price in case of the buy order

Once any of the aforementioned condition is met, the stop market order behaves as a market order. If the trigger condition already exists in the exchange, the order is placed right away.

For example, a stop market sell order with a trigger price of $10 and the last traded price of $12 will only be activated when the last traded price goes below $10. The stop market order then behaves as a market order, ensuring that the desired quantity is achieved regardless of the price.

Trailing Stop Loss Order

A trailing stop loss order works as a stop limit order. It includes two parameters – the trailing stop and the limit price difference. The trailing stop is the value used to trigger order’s activation. For a trailing stop loss sell order, if the value of an asset rises to a new peak and then falls from there, the order gets triggered when the difference between the peak price and current price is greater than the value specified in the trailing stop.  

One Cancels Other Order (OCO)

An OCO order allows two orders to be placed – a buy limit order and a sell limit order. If either of the two orders is executed or filled, the other gets cancelled automatically. To sum up, different orders have a different approach to drive the trading process. A cryptocurrency exchange development company can help you choose the right order type for your exchange platform.