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Understanding the Crypto Trading Order Book

What is an order book? Why does it matter? How can I use it to make money trading crypto? These are all questions that will be answered in this guide. To understand what an order book is, let’s first look at how cryptocurrency exchanges work. 

You’ve probably heard of things like the New York Stock Exchange (NYSE) or the NASDAQ. If you have, then you probably understand what an exchange is in the cryptocurrency context. The main difference here is that instead of stocks being traded, it’s coins or tokens.

Photo by RODNAE Productions from Pexels

Photo by RODNAE Productions from Pexels

The order book is an integral part of this process. Each price level on the order book should correspond with a buy and sell amount (for market orders). This is pretty straightforward when there are two people involved at every price level of the order book. However, with an exchange like the-bitcoinmotion.com/, there are many different people all selling and buying at various price levels. When you place a market order, the exchange finds the best available price according to your request and fills it accordingly. 

This is why understanding the order book is so important when trading cryptocurrency. What are some of the ways you can use it to make money?

Understanding Bear and Bull Markets

There are specific phases that every new market goes through. These include the accumulation phase, markup phase, breakout phase, and correction/consolidation phase. The order book will look completely different throughout each of these phases, which is why it’s important to understand each one. 

If you are new to trading cryptocurrency, then this may seem overwhelming. Don’t worry, the information in that article can help you move your way through these phases without getting too lost along the way. 

Trading the Order Book

The first thing you need to know is that the order book is made up of buy and sell orders. In other words, every time you place a market order, it will be filled by existing orders on the order book. The more orders there are beneath it, the higher chance that your trade will be executed successfully.

A common mistake that new traders make is thinking that they can just place a market order when they want to buy something. There are three types of orders that you can place:

  • Market Order: A market order is when you simply buy or sell at the current price listed on the order book without any conditions attached (this has a high chance of being filled at your requested price). 
  • Limit Order: A limit order is when you place a condition on the price of your order. If you only want to buy Bitcoin if it’s below $10,000 per coin, then this would be considered a limit order. 
  • Stop Order: A stop order is essentially the opposite of a market order. With a stop order, you need to place the conditions that will activate it beforehand and then wait for your desired conditions to be met before executing the trade.

Before diving into trading, you should understand how market orders work. This means that you simply buy or sell at the current price listed on the order book. 

So, how can you use this information to your advantage? A common mistake that many new traders make is they place market orders when they want to buy something and market orders when they want to sell. 

In conclusion, the order book is a crucial part of trading cryptocurrency. If you haven’t done so already, we recommend familiarizing yourself with the different kinds of orders that you can place. This way, you will be able to capitalize on each phase of the market and make money like a pro trader!

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