Now it is time to become familiar with how order placement works on exchanges. By using different order types on centralized exchanges—and on some decentralized exchanges—you can buy your desired cryptocurrency at a specific price and at your preferred time. Although the user interface (UI) of exchanges differs, most of them provide similar order types and functionalities. Therefore, we must first learn the common terminology and shared language used by traders and exchanges.
Position
In financial markets, a trader is usually in one of two positions: a buy position or a sell position. Buy trades or buy orders are called a buy position, while sell trades or sell orders are called a sell position.
Long Position
One type of order on an exchange is a buy order. In financial markets, a buy order or buy position is also called a long position. This means that when we place a buy order on an exchange, we have opened a buy position or a long position.
Short Position
Another type of order on an exchange is a sell order. In financial markets, a sell order or sell position is also called a short position. This means that when we place a sell order on an exchange, we have opened a sell position or a short position.
Of course, the exact meaning of short selling is slightly more complex than this simplified explanation. Since in some markets—such as the Iranian stock market—two-way trading is not available, many traders are less familiar with short selling. A two-way market is one where traders can profit from both rising and falling prices.
In a long position, we profit when the price of the purchased asset increases after buying. We then sell at a higher price, and the profit is the difference between the selling price and the buying price.
In a short position, based on technical or fundamental analysis, we expect the price of an asset to decline. For example, if Bitcoin is priced at $20,000, we borrow 1 Bitcoin from the exchange and immediately sell it, receiving $20,000. If the price later drops to $15,000, we buy 1 Bitcoin at that lower price and return it to the exchange. The remaining $5,000 is our profit.
Markets that allow both long and short positions are called two-way markets. Most global financial markets—including cryptocurrencies, stocks, forex, and gold—are two-way markets. In contrast, one-way markets only allow profits from rising prices.
Best Bid and Ask Prices
The bid price is the highest price a buyer is willing to pay for an asset. The ask (or offer) price is the lowest price at which a seller is willing to sell. The bid price is always lower than the ask price. All buy and sell orders are recorded in a list called the order book.
So far, the goal was to familiarize you with common financial terms so that you are not surprised when encountering them in this website or any other educational resource.
Order Types on Exchanges
Centralized exchanges support buy orders and sell orders. Traders must carefully read exchange documentation to understand the features of each order type.
After logging into an exchange account, you will see various sections. In Step 19, we covered Wallets or Assets. Now we look for the Trade section and then Spot trading. Other sections such as Futures, Margin, Stake, and Earn also exist and require separate study.
As learned in Step 11, after identifying a good entry price through analysis, we must place an order on the exchange to buy at that price.
Limit Order
A limit order means setting a price limit. The exchange is allowed to execute the order at the specified price or a better price. For buy orders, a better price means lower; for sell orders, a better price means higher.
If we set a buy limit at $20,234, the exchange will only buy at that price or lower. If no seller is willing to sell at that price, the order remains open.
If market conditions change and the price never returns to the limit price, the order may never be executed.
Market Order
A market order is used when we want to buy or sell immediately at the best available market prices without waiting. We simply specify either the total amount of money to spend or the amount of cryptocurrency to buy or sell.
The exchange automatically executes multiple trades from the order book in fractions of a second to fulfill the order.
Because prices move quickly, the final execution price of a market order may be higher or lower than expected.
Stop-Limit Order
In a stop-limit order, when the price reaches a specific stop price, a limit order is activated. The stop price acts as a condition that must be met before the limit order becomes active.
This order type is commonly used for conditional entries or exits.
Stop-Loss Order
After entering a trade, risk management becomes critical. As explained in Step 13, setting a stop loss immediately after buying is essential. A stop loss defines the price at which we accept a loss and exit the trade to prevent further damage.
Stop losses are usually placed using stop-limit or stop-market sell orders.
Stop-Market Order
In a stop-market order, once the stop price is reached, a market order is executed immediately at the best available price.
Take-Profit Order
In an uptrend, after buying an asset, we may set a take-profit order at a higher price level to automatically close the trade with profit. Some exchanges allow setting stop loss and take profit simultaneously; otherwise, they must be placed separately.
Additional advanced order types such as OCO or trailing stops may be available and should be studied directly from exchange documentation.
Price movements in financial markets happen very quickly, and examples in this step are simplified for educational purposes.
Trading fees were not considered in the examples above. Every exchange charges fees, and you must consult the exchange’s documentation for exact rates.
You do not need to memorize these terms. Through practice, repetition, and continued study, each order type will gradually become intuitive.
Worth Noting
Understanding order types is foundational for disciplined trading. Most losses come not from bad analysis but from incorrect order execution or lack of risk controls. Mastery of limit, market, and stop orders is a prerequisite for advanced strategies.
How AI Helps
AI-powered trading assistants help traders choose optimal order types based on market conditions, volatility, and liquidity. Tools such as ChatGPT can guide users step by step in selecting and configuring orders. Advanced platforms use AI to analyze order books, detect slippage risk, and simulate execution outcomes. Professional traders rely on AI-driven analytics, smart order routing, and automated risk management systems to reduce execution errors.
FAQ
What is the difference between a limit order and a market order?
A limit order sets a specific price, while a market order executes immediately at the best available price.
What does a long position mean?
A long position means buying an asset with the expectation that its price will rise.
What does a short position mean?
A short position means selling an asset with the expectation that its price will fall.
Why is a stop loss important?
A stop loss limits potential losses and protects capital in unpredictable markets.
When should I use a stop-market order?
When immediate execution is more important than price precision.
Do all exchanges support the same order types?
No, available order types vary by exchange and must be reviewed in each platform’s documentation.