How to trade on a crypto exchange 📊 (1/5)
– Hey, everyone, and welcome to the first in our new Trading series, where we take you through
all that you need to know about trading cryptocurrencies. This was the most requested topic, so we've listened to you guys. In this episode, the
inaugural episode if you like, you'll learn how a
cryptocurrency exchange works. We'll cover everything from making sense of the order book, the different types of
orders, to what the spread is, so you can trade like a pro. Let's dive straight in
to this week's episode. This is an exchange. A crypto exchange is a platform where buyers and sellers meet to buy and sell cryptocurrencies, such as Bitcoin and Ethereum. At the center of the exchange,
you have the candle graph. Below the graph, you can see
any open orders that you have and then you can also place an order.
To the right, you have the
recent trades and order book. Let's kick this tutorial
off with the order book. The order book lists orders that buyers and sellers have made. These are waiting for a
match in order to execute. An order is an instruction to trade, either buy or sell, on the exchange. As we've said, there are
different types of orders. A bid is a buy order, the
ones that you see in green, and an ask is a sell order,
the ones that you see in red. These can either be market
orders or limit orders, which we'll explain in just a minute. But first, let's go over
maker and taker orders. These are essentially
classifications that say whether an order adds liquidity or takes it from a market. A maker order is either a limit buy order below the market price or a limit sell order
above the market price. The order waits in the order book and is therefore said to make the market, aka a market maker. A taker order is the opposite, so this is either a buy
order above the market price or a sell order below the market price.
This order executes immediately without waiting in the order book because it matches with the maker orders and takes them out of the market, so it's said to be a taker order. Essentially, takers want
the trade done instantly and they're willing to
accept the price and fees that maker orders have asked for. There's one really good example. If James creates a maker limit sell order for 1 XRP at $1, it will
sit in the order book. Then let's say Sherry puts in a buy order for 1 XRP at the market price, which, for the sake of this example, let's say matches James' $1. Her order would be a taker order that executes immediately, taking or executing against James' order. These two buyers and sellers are matched. So maker and taker orders
can be buy or sell orders.
The important thing to remember is that maker orders, James', will wait in the order books to be executed by the
taker orders, Sherry's, which accept the maker prices and take them out of the market. Now let's move on to the market orders. These are always taker orders because they execute immediately without waiting in the order book. You place a market order by specifying only the
amount you want to trade, leaving the price up to the market.
To recap, market orders
are always taker orders because they execute immediately at the best available price in the market. This means they match the existing orders waiting in the order book. Now let's look at limit orders. These are placed by specifying both the amount and the price
that you want to trade at. Depending on the price that you specify, the limit order might trade immediately against existing orders in the order book. In that case, it would be a taker order. Alternatively, it might
go into the order book where it will wait for the other orders to trade against it. In that case it would be a maker order. There are different fees associated with maker and taker orders, as one adds liquidity to the market and the other takes it. One last type of order we want to talk about are stop orders. These are orders that are triggered when an asset, like say Bitcoin, moves past a specific price point. If it moves beyond that price point, stop orders are converted
into market orders that are executed at the
best available price.
Say you wanna go out to the pub, you don't have to watch your trades. There are lots of types of stop orders, including buy stop orders
and sell stop orders, as well as stop market
and stop-limit orders. These automatic trade
orders are used by investors to take advantage of certain prices or to protect against
losses if the price dips. The last thing we want
to cover in this episode is something you may have noticed between the buy and sell
orders in the order book. This is known as the spread. The spread is the difference between the price of the highest buy order and the price of the lowest sell order. It can tell you a lot about
the stability of the market. A lower spread is a sign of
a healthy or stable market. For example, if the difference in price between what buyers and sellers want on an exchange is $1, that's great, but if the difference is $100, then that's not a very
stable or a liquid market. This might happen because
there aren't enough buyers and sellers to be matched or there isn't an agreement
in what value that asset is.
Okay, guys, that is a
wrap for this episode. I hope you enjoyed it. In the next episode, we'll
discuss different types of crypto trading
strategies that people use, so make sure you tune in. If there's anything you felt I missed or that you still want to know about, drop us a comment or tweet us. Don't forget to smash
that subscribe button, ring that bell, so you never
miss any of our content. And as always, #tothemoon!.