Trading Order Types and How They Work
#market_basics
A trading interface on an exchange can show many names: Market, Limit, Stop Loss, Take Profit, Trailing Stop, TWAP, Iceberg and others. At first glance it seems that each of them is a separate way of trading.
However, they are easier to understand if you separate three things: how the order is executed, when it is triggered and how its volume is distributed.
Execution on an exchange with an order book rests on two main order types — market and limit. Conditional orders add trigger rules, and trading algorithms manage the placement and execution of individual orders.
What a trading order is
An order is an instruction to the exchange to buy or sell a certain quantity of an asset or contracts according to set rules.
When creating an order, the trader specifies the instrument, the direction and the volume. Additional settings define the acceptable price, the trigger condition, the time in force and other details.
An order and a trade are different things. An order expresses the intention to carry out a trading operation. A trade happens when the exchange matches it with a counter-order and execution takes place.
One order can be executed in several trades: with different participants, at different prices and at different times.
Limit order: execution with a price limit
A limit order is an order to buy or sell at a specified price or better.
For a purchase, the limit price is the maximum price you are willing to pay. For a sale — the minimum price at which you agree to sell.
For example, a limit buy order at 100 USDT allows execution at 100 USDT and below. It will not buy at 101 USDT.
If there are no suitable counter-orders, a regular limit order stays in the order book and waits for execution. It can be filled completely, partially or remain unfilled.
How a limit order creates liquidity
Suppose the best sell offer is at 101 USDT. You place a limit buy at 100 USDT.
An immediate trade is impossible: sellers are not yet ready to sell at your price. Your order appears in the order book and becomes available to other participants.
When someone agrees to sell you the asset, a trade takes place. In this execution you act as a maker, because you provided liquidity in advance.
Can a limit order be executed as a taker
Yes, if on placement it immediately meets suitable offers.
Suppose the asset is already being sold in the order book at 100 USDT. You send a limit buy at 101 USDT. The exchange can immediately buy the available volume for you at 100 USDT: this price is within your limit.
In such an execution you are a taker, because you take existing liquidity.
One limit order can be partly executed immediately as a taker, while the remaining part sits in the order book and is later executed as a maker. So a limit order does not automatically mean maker execution.
Market order: execution against available offers
A market order is an order for an immediate purchase or sale against the available counter-offers.
A market buy takes the sell orders — ask. A market sell takes the buy orders — bid.
Such execution happens as a taker.
A market order does not mean buying the whole volume at the last price or at the best offer in the order book. The outcome depends on how much liquidity is available at each price level.
Execution example
You send a market order to buy 50 coins.
| Sell price | Available volume |
|---|---|
| 100 USDT | 20 coins |
| 101 USDT | 30 coins |
- 20 coins at 100 USDT — 2,000 USDT;
- 30 coins at 101 USDT — 3,030 USDT.
2,000 + 3,030 = 5,030 USDT
5,030 ÷ 50 = 100.60 USDT
The best offer was 100 USDT, but the whole volume was not available at that price.
A market order gives priority to the speed of execution. At the same time, exchange restrictions, protection against excessive slippage and changes in liquidity can lead to incomplete execution or cancellation of the order.
Conditional orders: first the event, then execution
A conditional order triggers a trading order when a set condition is met.
“If the price falls to 95 USDT, send a market sell order”
Until the condition triggers, such an order usually does not take part in matching in the order book. Once triggered, it is executed according to the rules of the chosen base type:
- Conditional Market / Stop Market — a market order is sent;
- Conditional Limit / Stop Limit — a limit order is sent.
“Conditional market” and “stop market” are different names for the same mechanism.
On exchanges the condition can be tracked by the last trade price, the mark price or the index price. Execution still takes place against the available offers in the order book.
The trigger price determines the moment of launch, not a guaranteed trade price.
How Stop Market differs from Stop Limit
Suppose you want to sell a position if the price falls to 95 USDT.
Stop Market. After the condition triggers, the exchange sends a market sale. The actual price depends on the available liquidity.
Stop Limit. You specify two values:
- the trigger price — 95 USDT;
- the limit sell price — 94.50 USDT.
After the trigger, the exchange places a limit sale at 94.50 USDT or better.
If the available buyers are already offering only 94 USDT, such an order will not be executed immediately. It limits the acceptable sale price, but leaves the risk that the position stays open.
Take profit and stop loss
Take profit and stop loss describe the purpose of an order to close a position.
Take profit is meant to lock in profit when a chosen level is reached. Stop loss — to close a position when the price moves unfavourably.
They can be executed as market or limit orders:
| Name | What happens after the trigger |
|---|---|
| Take Profit Market | A market order to close is sent |
| Stop Loss Market | A market order to close is sent |
| Take Profit Limit | A limit order to close is sent |
| Stop Loss Limit | A limit order to close is sent |
So market take profit and stop loss work on the same scheme: condition → market order. An exchange may separate them in the interface because they solve different tasks.
Example for a long and a short
Suppose a position is opened at 100 USDT with a volume equivalent to 50 coins. The position value at entry is 5,000 USDT.
| Position | Task | Trigger condition | Action |
|---|---|---|---|
| Long | Take profit | Price rose to 110 USDT | Sell 50 coins |
| Long | Stop loss | Price fell to 95 USDT | Sell 50 coins |
| Short | Take profit | Price fell to 90 USDT | Buy 50 coins |
| Short | Stop loss | Price rose to 105 USDT | Buy 50 coins |
In the market version, all four scenarios end with a regular market order. What differs is the trigger condition and the direction of the operation.
A stop order can also be used to open a position. For example, to buy after the price rises to a set level. The word “stop” on its own does not mean that the order necessarily closes a trade at a loss.
Trailing stop: a condition that follows the price
Trailing Stop, or a sliding stop, is a conditional order with a moving trigger level.
To close a long, it tracks the rise in price and raises the stop level. On a reverse move the level no longer goes down. For a short the logic is mirrored.
Example
| Highest price after activation | Trigger level |
|---|---|
| 100 USDT | 95 USDT |
| 110 USDT | 105 USDT |
| 120 USDT | 115 USDT |
If after reaching 120 USDT the price falls to 115 USDT, the condition triggers.
Different exchanges offer market and limit versions of the trailing stop. In the first case a market order is launched, in the second — a limit order. The offset can be set as an amount or a percentage; there may also be a separate activation price.
Linked orders: managing several orders
Some names denote a link between orders: the execution of one triggers or cancels others.
| Mechanism | How it works |
|---|---|
| OCO — One Cancels the Other | Two linked orders: the execution of one, or an event defined by the exchange, cancels the other |
| OTO — One Triggers the Other | Execution of the first order triggers the next one |
| OTOCO | Execution of the entry order triggers a pair of linked OCO orders |
| Bracket Order | Entering a position with take profit and stop loss conditions set in advance |
For example, after a long is opened, the system activates a take profit above the entry price and a stop loss below it. When the position is closed by one scenario, the other is no longer needed.
The specific rules for activation, handling partial execution and cancellation depend on the exchange. These mechanisms link regular and conditional orders rather than create a new way of execution.
Algorithmic orders: how to distribute a large volume
Algorithmic tools manage a series of individual orders. They determine when to send the next part of the volume, at what price and under what conditions to continue execution.
Iceberg — the iceberg order
An iceberg lets you avoid showing the whole order volume at once.
For example, you want to buy 1,000 coins but show only 50 in the order book. After the visible part is executed, the next one appears.
In the classic version this is a limit order with a visible and a hidden part. On some exchanges, the name Iceberg refers to an algorithm that places small limit orders in sequence, including with price changes.
So an iceberg does not necessarily mean maker execution: it depends on the placement prices and the settings.
TWAP — execution in parts over time
TWAP distributes the total volume over a set period.
For example, instead of one purchase of 500 coins, the algorithm sends ten orders of 50 coins at equal intervals.
The child orders can be market or limit — depending on the settings and the exchange's implementation.
TWAP helps spread execution over time, but it does not lock in the final average price: the market keeps moving between the individual purchases or sales.
POV — execution that follows market activity
POV — Percentage of Volume — adjusts the volume of execution to trading activity.
In the classic model, the algorithm aims to take part in trading with a set share: for example, to buy a volume corresponding to a certain percentage of the observed turnover.
When activity is high it executes more, when it is low — less. Some implementations also look at the volume of orders in the order book.
Underneath, it is still individual trading orders. Their type and the way they are placed are determined by the algorithm's mode.
Scaled Order — distributing orders across prices
A Scaled Order places several limit orders across a chosen range.
| Buy price | Volume |
|---|---|
| 100 USDT | 100 coins |
| 99 USDT | 100 coins |
| 98 USDT | 100 coins |
| 97 USDT | 100 coins |
| 96 USDT | 100 coins |
Each order is executed independently. The market may reach only some of the levels.
The volume does not have to be distributed evenly: the algorithm can increase or decrease it from level to level.
Chase Limit — a limit order with a changing price
Chase Limit automatically moves a limit order to follow a chosen reference in the order book.
For example, a buy order can follow the best bid until it is executed or reaches a set limit.
This mechanism differs from a trailing stop in its purpose: a trailing stop changes the trigger condition, while Chase Limit changes the price of the limit order being placed.
Additional execution settings
Not everything in the order menu is a separate order type. Many items set restrictions for an order that has already been chosen.
Post Only — maker execution only
Post Only prevents a limit order from immediately taking counter-liquidity.
If on placement the order could be executed as a taker, the exchange rejects or cancels it according to its rules.
This setting lets you control your role in execution, but it does not guarantee that anyone will fill the order.
Reduce Only — reducing the position only
Reduce Only allows an order to reduce an existing position, but prevents it from increasing it or opening the opposite one.
For example, after a long has been closed, a remaining sell order should not accidentally open a short. Reduce Only is used precisely to restrict this behaviour; the available combinations with order types depend on the exchange.
Time in force: GTC, IOC and FOK
| Setting | How it works |
|---|---|
| GTC — Good Till Cancelled | The order stays active until it is executed or cancelled, subject to the exchange's rules |
| IOC — Immediate or Cancel | The available part is executed immediately, the rest is cancelled |
| FOK — Fill or Kill | The whole volume is executed immediately, or the order is cancelled completely |
- GTC: buy 60, keep the order for the remaining 40;
- IOC: buy 60, cancel the remaining 40;
- FOK: buy nothing, cancel the whole order.
FOK applies to a single order. It does not ensure simultaneous execution of two legs on different exchanges.
How to understand any new name
Names and available combinations differ between exchanges. To understand how an order works, it is enough to answer four questions in turn:
- What triggers execution? Sending the order, reaching a price, the end of an interval or another event.
- Which order is executed? Market or limit.
- How is the volume distributed? In one order, in parts over time or across several price levels.
- What restrictions apply? A price limit, Post Only, Reduce Only, time in force and cancellation rules.
For example, Take Profit Limit with Reduce Only is a profit-taking condition that launches a limit order and allows it only to reduce the position.
And TWAP with market execution is an algorithm that sends small market orders on a schedule.
This is how a complex name turns into a clear sequence of actions: when to send the order, how to execute it and what to do with the remaining volume.