Crypto Academy Week 15 - Homework Post for [@yousafharoonkhan] - Exchange order book and its Use and How to place different orders? by @dexsyluz
Fuente
1. What is meant by order book and how crypto order book differs from our local market. explain with examples (answer must be written in own words, copy paste or from other source copy will be not accepted)
We talk about an order book when we make an offer, either to sell or to buy in the crypto market. An order book is nothing more than a book where orders to buy and sell a cryptocurrency in a specific pair are recorded. For example, if we use the pair BTC/USDT, we will enter the market specifically in the order book where we will sell BTC obtaining in exchange USDT, or in given case we will buy BTC with the USDT we have in the Exchange.
When we go to the local market, we do not make an offer to buy or sell, we simply go to the market with a list of products we wish to acquire and the money needed to make our purchase (cash or cards). When we talk about the crypto market we must necessarily make an offer, besides that within the crypto market prices are driven by supply and demand of the moment, the conventional market system is a bit archaic at the time of establishing its price by supply and demand; which would take even weeks to notice the price change, the crypto market is characterized by volatility in supply and demand.
In the crypto market we use pairs when making a buy or sell offer, in the case of the local market, we are only going to use a local currency that is established as accepted by a financial board. In my country there are only two currencies accepted in the local market, bolivars (VES) and US dollars (USDT).
As I commented before, supply and demand are handled in the local market more slowly, since only the local trader has access to this information, not like the crypto market which is handled on a blockchain that offers transparency in the market.
Another difference is that in the local market we cannot use stop limit orders and OCO orders, we are only allowed to manage the market when buying a product and pay cash for it.
- Pairs
- Support and Resistance
- Limit Order
- Market order
As I am new in the world of Cryptocurrencies, I recently created my Binance account in which I have been managing to find out more about the functions I can perform on it.
I opened it and did the basic verification, at the time of transferring balance from Steemit to Binance, I could not because it was under maintenance, so I will work with my account without funds FOR THE TIME BEING. In the meantime I am very grateful that you can accept my assignment.
Screenshot by @dexsyluz
- We log in to our Binance account.
- We go to the market.
Screenshot by @dexsyluz
- Select Spot Markets.
Screenshot by @dexsyluz
- We select a trading pair of our preference, in my case I already had as a favorite, the STEEM/BTC and STEEM/ETH pairs.
Screenshot by @dexsyluz
- We will explain in more detail the STEEM/BTC market, here we can observe the price that each 1 Steem token occupies in BTC, and the price in dollars ($) of the cryptoasset. Let's select the ''opera'' check box.
Screenshot by @dexsyluz
- And will take us directly to the Binance Exchange order book.
Screenshot by @dexsyluz
Trading pair
When we talk about Trading pair, we are talking about the currency with which we are going to acquire another currency, that is, we must choose the currency we are going to buy, and the currency with which we are going to pay. When we choose the ETH/BNB pair it means that I as a buyer I am willing to pay with BNB the ETH I am willing to buy, if we choose the case of the BTC/ETH pair to sell BTC, it means that I am going to make an exchange of the currency BTC to ETH to be more specific. These pairs are going to allow us to perform our exchange or buy and sell in the market.
It is very important to choose from the beginning the pair that we are going to exchange, since this will depend on the success of the transaction.
Support and Resistance
To explain support and resistance I would like to give an example with the LTC/USDT crypto trading pair.
Screenshot by @dexsyluz
We simplify the concepts in this way, a support is the minimum price of an asset before going up to its next resistance. A resistance is the maximum price of a cryptoasset before going down to its next support.
Looking at it this way, a support is considered a point where a cryptocurrency is expected to have a bullish behavior, and a resistance is considered a point where a cryptocurrency is expected to have a bearish behavior.
This trend is mostly exploited by Tradens in the Crypto market and not so much by those who do Holding. Since buyers take advantage of the downtrend to stock up the cryptoasset having the certainty that it will go up. It must be taken into account that nothing is certain, all this procedure has a margin of risk, but it is mostly used to operate with greater security and be confident when to enter the market.
in the case of LTC support and resistance we go as several times the cryptoasset marked different supports, but there was an increase in its resistance, so I could deduce that it is a good time to sell to get good profits before the asset reaches its next support and thus a higher resistance.
A little more on the use of your analysis for trading with stop limits will be explained later.
Limit Order
When we talk about limit order, we are referring to the order in which we are going to put a price to our preference to sell a currency, it means that when I am not satisfied with the current market price, I can create a limit order which will sell my asset if it reaches the limit I have set.
Let's see an example, if I have ETH in my portfolio, I will create my sell limit order with a price a little higher than the market price, I mean that if the ETH is currently at $2500, when I create my order I will set my limit at $2700 in order to get a little more profit when the buy order is executed. In other words, my buy order will be executed when the price of ETH is equal or higher than $2700.
If I want to buy ETH at $2300 and the market price is $2500, when I complete my limit order, the purchase will be executed when the price of ETH has dropped to $2300 or less.
Market order
When we refer to market order, we mean the current price of a cryptoasset in the market. When placing this market order, the price will not be placed by us as we did with the limit order, but we will place the order with the current market price, without imposing any price, in this case the transaction lasts for a short time in the order book, it depends on the supply and demand in this case.
It means that if we are going to buy ETH in some pair of our choice, we will need to use the current market price, if ETH is currently at $2500, the buy or sell order will be executed at that price.
As it says above my account does not currently manage funds, because my Steem funds I can not pass them even to my Binance account because the system to deposit STEEM is currently under maintenance, but this does not prevent me to do it in future opportunities, my account has about 3 days since I opened it, and I made my basic verification to handle a maximum of $300 in Cryptocurrencies through the Binance platform. Here I provide my evidence:
Photo by @dexsyluz
Screenshot by @dexsyluz
Order Book
So to start viewing the content of the order book we must go to Binance, in this case I will use the play store application, we will go to the main interface and check the box ''market''.
Screenshot by @dexsyluz
Then we will check the Spot box, to display the pairs we want to use for exchanges. I selected STEEM/BTC again.
Screenshot by @dexsyluz
Click on the pair and it will take us directly to the visualization of the buy and sell orders that are currently open in the market of the pair we have chosen (STEEM/BTC).
Screenshot by @dexsyluz
This will help us to determine the supply and demand of an asset, which will lead to determine the current price.
Placing a purchase order in the market
After we have chosen the pair of which we have availability in our wallet, we will press the buy button and fill in the following information.
Screenshot by @dexsyluz
We will complete a limit order (you can choose the order you want), in which we will buy 10 STEEM when it touches a low price of 0.0000130 BTC, for this we must also visualize the STEEM charts, which almost always has an average price of $0.5, it means that we must place the limit order in the usual support to be sure that it will increase its price.
Screenshot by @dexsyluz
Screenshot by @dexsyluz
We thus complete the limit order and the STEEM purchase will be executed when it touches the limit price I set. and in total it will show the amount of BTC to spend on the STEEM purchase, in this case 0.00013000 BTC.
Place a sell order in the market
We refer to sell order, the order that we make to sell an asset that we have in our wallet, or in this case, we exchange it for another asset that facilitates the exchange (I mean to select the pairs).
Screenshot by @dexsyluz
In this case I will use the same STEEM/BTC pairs, for that we will only select the sell box in the platform, also select the limit order but in your case you can select the one you want.
Screenshot by @dexsyluz
We complete the sell limit order by visualizing STEEM's resistance, so we can be sure that it will go down and make a good profit.
In my case I filled my order giving STEEM a limit of 0.00002000 BTC, when STEEM reaches that price my order will be filled as a market order to execute my sell order of 10 STEEM at a total price of 0.00020000 BTC in my sell order.
Basic level verified account in Binance
When we talk about Stop-limit, we are referring to a hybrid between stop-loss and crypto market limit orders, I mean that we will find equal characteristics of both in a single operation. This will help us to significantly reduce losses and increase profits depending on the objective for which we are using it, we can use it both to reduce losses and to increase profits when trading.
To manage it, we must study the cryptographic pair with which we are going to work, we must know how to locate the resistances and supports of a cryptographic pair in order to use correctly the stop limit orders.
A very clear difference is that when we execute a Stop Loss, is that this ensures execution, while when we work with Stop Limit, we will establish a range that will ensure our investment, when our price is outside the limit that we have set the order will not be executed if not when the cryptocurrency returns to the price that I set as a limit.
By this I mean, that when working as stop limit orders, we are working with a price range set by the Trader (in this case us) to ensure our investment and not cause losses that can be devastating and lose all our capital.
Screenshot by @dexsyluz
In this case we are going to trade a different pair, the LTC/ETH pair.
Screenshot by @dexsyluz
The buy order that we are going to establish when the asset touched its last support of 0.067ETH, we would have established a stop limit order of 0.068ETH(170$), whose limit we could set at 0.070ETH(175$), in this way we would establish that if the asset had reached a price between 0.068ETH and 0.078ETH, a limit order is generated between this price to ensure profits. 068ETH and 0.078ETH, a limit order is generated between this price to ensure profits, if the price continues to rise higher than the limit and the order was not realized, the purchase order is suspended until it returns to that price.
Screenshot by @dexsyluz
We also put the amount of LTC we want to obtain (we can also put if we want to buy all the amount of ETH available in our wallet, in LTC) and it places the total in ETH that we must have to buy that asset.
Screenshot by @dexsyluz
If we define the current price as the new resistance created by the asset, we can say that it will definitely go down, so if we have in our wallet a certain amount of LTC, currently the price is at $186 (0.073ETH), we can set a stop limit where we determine a stop order when the asset is going down by 0.070 ETH (175$), if the limit is 0. 0655ETH ($165) we are setting the order to execute a limit order within this range, if the order is not sold within that range, the execution of the order is canceled, thus protecting our capital not to lose more money and wait for it to rise again to its next resistance, although if we do not cancel the stop limit, the order could be executed again when the asset rises again and is above that range.
Screenshot by @dexsyluz
We place the amount of LTC we wish to sell (or we place that we are willing to sell 100% of our LTC we have in our wallet), in this case I will also place 0.5 LTC I am willing to sell at this set price range.
Basically this helps us to establish how much money I am willing to lose, it helps to protect our investment.
OCO stands for ''One order cancels the other'', meaning that 100% execution of one order automatically cancels the other. In the case of the exchange I am using, we can see that OCO orders are composed of limit and stop loss orders.
To have a better understanding of OCO orders let's analyze an asset that recently had its last support point, in this case I am talking about the LINK/USDT pair.
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Screenshot by @dexsyluz
Screenshot by @dexsyluz
The current price of LTC/USDT is $28.7. I set the limit order price at $30, the stop limit at $29 and the limit price at $27 as we see in the screenshot.
If the price of LTC exceeds $30, the limit order will be executed. The stop limit order we have set will be cancelled. If the price of the cryptocurrency goes down and settles at the stop price ($29), the limit order I set as stop price (stop limit) will be executed up to its limit price. The limit order (the one we set thinking it was going to go up) will be automatically cancelled.
Screenshot by @dexsyluz
Now let's make a sell order, as the current price is $28.7, I will set sell when it touches the point of $40, this will turn out to be my limit price, the stop price I will place $37 (Stop limit), with a limit price of $35.
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Screenshot by @dexsyluz
This means that when the asset hits the $40 limit price I set, the limit order will be executed and the stop order will be automatically cancelled as we saw before. If the price goes down and settles at the stop price of $37, the order placed as stop price (Stop limit) will be executed until its limit price, at the moment this happens, the sell limit order we set first will be canceled simultaneously.
Thanks to the development of this task we can learn how to manage the order book and how it helps us at the time of trading or hold, mainly we can make profits thanks to market orders, limit orders, stop limit orders and OCO orders. The market order is always the fastest, it will execute the buy or sell order at the moment and at the current market price.
Suppose we want to buy an asset for trading but we do not want to buy at the current market price, we can set a limit order so that the purchase is executed when the asset reaches the price set by the trader (in this case, us). The same for the sale, if we want to sell an asset that we have in our wallet at a higher price than the current one, we can set a limit order and this will be executed when the asset is at that price, we must also take into account that each of these operations go hand in hand with the knowledge of the supports and resistances of a particular asset.
I mean that before buying or selling an asset we must study it to apply these tools and thus know what is the best time to sell or buy.
For example, if I have 50 STEEM in my wallet that I want to sell in exchange for BTC using the STEEM/BTC pair, I must wait for at least the approximate future resistance to make profit, then if I want to make more profit, I can re-set a purchase when this asset touches its support point and is about to go up. The law of selling high and buying low even more of the token.
I bought through a platform called Amberescoin, just under $10 in BTC, as my first investment since I am new, but I bought it at a price of $56000, for the moment I plan to leave it on hold, because I would not dare to take out my investment with losses of almost 40%, but since I took the advice to invest only what I am willing to lose, then I will take patience.
Now thanks to stop limit orders, we can set a price to sell our asset and if it fails to sell, we cancel the order to avoid further losses and wait for the currency to rise again. This way we can protect our investment, for example, if I buy a BTC/USDT at a price of $56000, I can set an order so that if the asset falls to $50000, I execute a buy order until it reaches the limit of $48000, if the order is not executed in that range, the order is canceled to avoid greater losses that we can not bear.
Something similar happens with OCO orders, as this time it is two combined orders that are executed, in order to make profits and save us from some losses. It helps us to operate in markets where prices are very volatile, and thus saved us from many rages and frustrations.
I must recognize that it is very important to know the functionality of each of these tools that we have in the order book.
This class helped me to know that there are tools in the order book that help us to trade safely in a bullish or very volatile market, which I did not know. We must arm ourselves with all this knowledge and put it into practice to not forget what we learned thanks to you professor @yousafharoonkhan, make losses minimal and bearable, and get a considerable profit when trading.
Thank you for joining The Steemit Crypto Academy Courses and participated in the Homework Task season 2 week 7.
Thank you very much for participating in this class. I hope you have benefited from this class.
Grade : 7
thank you very much for your dedication in reviewing my homework professor!