How Does Bitcoin Trading Works?

Author: nicolas tang

trading bitcoin woman

Bitcoin trading is among the most popular cryptocurrency trading methods around the world. It is popular in both spot and derivatives markets. As a matter of fact, most of the crypto exchanges offering derivatives trading services start by listing Bitcoin derivatives.

To make the most out of Bitcoin trading, it is important to understand how Bitcoin trading works.

Bitcoin trading

Most crypto derivatives trading exchange platforms like Phemex offer Bitcoin perpetual contracts. Perpetual contracts are normally different from a futures contract in that perpetual contracts are eternal while futures have a specific timeline. Therefore, one can open buy or sell perpetual contracts and close them when he/she wants.

In Phemex, the Bitcoin perpetual contract is normally denoted as BTC/USD. Each of the BTC/USD perpetual contracts is worth $1 and funding is completed within 8 hours. Therefore, for you to buy $1000 worth of Bitcoins using a BTC/USD perpetual contract, you will buy 1000 BTC/USD contracts.

Phemex has three ways of placing a BTC/USD perpetual contract namely limit orders, market orders, and conditional orders.

Limit BTC/USD contract orders

If one chooses to use a limit order to buy or sell Bitcoins, they normally set a price (referred to as the limit price). For a sell order, the limit price is normally set above the current trade price. For a buy order, the limit price is set at a price lower than the current trade price.

The contract is executed once the limit price is hit. However, you will have to choose the manner in which you want the contract to be executed once the limit price is hit. Phemex gives three execution methods namely: GoodTillCancel, ImmediateOrCancel, and FillorKill.

For GoodTillCancel, the BTC/USD order remains active until the entire order is executed. This means if you want to buy $10000 worth of Bitcoins, at a limit price of 6000 USD, 6000 BTCUSD perpetual contracts will be opened when 6000 USD price is hit. The remaining 4000 perpetual contracts would remain active until they are available.

For ImmediateOrCancel, only the available contracts are placed when the limit price is hit. Therefore, if an order to buy $10000 worth of Bitcoins at a limit price of 6000 USD was placed, no contract would be opened. So, for you to place an order using this execution method, the limit price must be equal to the worth of Bitcoins you wish to buy or sell.

For FillOrKill, the available portion of the order is executed while the remaining part is canceled. For example, if you wanted to buy $10000 worth of Bitcoins at a limit price of 6000 USD, 6000 contracts would be executed while the remaining 4000 contracts are canceled.

Conditional BTC/USD contract orders

This is slightly similar to using limit orders. The only difference is that is has a trigger price. It is recommended for professional traders.

Market BTC/USD Contract orders

These types of orders are executed and filled instantly from the order book at the best available market price. If you choose to use market BTC/USD Contract orders, your perpetual contracts are executed at the current market price

The only unfortunate thing is that the execution price is usually not guaranteed due to market price fluctuations. Execution is purely done through the GoodTillCancel method.

For any inquiries contact us at support@phemex.com.

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