Trading basics: orders, spreads, slippage and risk

Market, limit and stop orders

An order is an instruction to buy or sell, and its type decides what you're guaranteed: usually speed or price, rarely both.

A market order buys or sells at once at the best price available. The US Securities and Exchange Commission (SEC) warns that the last traded price "is not necessarily the price at which a market order will be executed". A limit order buys only at your price or lower, or sells only at your price or higher, and it may fill partly or not at all.

A stop order, or stop-loss, becomes a market order once the price reaches a trigger, the stop price. The trigger is not a promise: Kraken, a crypto exchange, warns that in markets with "high volatility and relatively low liquidity like cryptocurrency markets", fills are likely to be "significantly lower or higher than your stop price". A stop-limit order becomes a limit order instead.

Here is how a limit order fills:

The bid–ask spread and order-book depth

On an exchange with an order book, buyers post bids (what they'll pay) and sellers post asks (what they'll accept); the order book lists these waiting limit orders. The spread is the gap between the highest bid and the lowest ask. Buy at the ask and sell straight back at the bid, and the spread is what you lose.

Depth is how much is waiting at each price; Kraken defines it as "the cumulative volume of buy and sell orders at a particular price". A deep book absorbs large orders with little price movement, and a thin one doesn't. Here is the sell side of an illustrative book:

A market order for 2 coins takes 0.5 at $100.00, 1.0 at $100.10 and 0.5 at $100.30: an average of about $100.13, not the $100.00 on the screen.

Slippage and fees

Slippage is the difference between the price you expected and the price you got. It happens when the price moves before your order fills, or when an order eats through several levels of the book, as above. It is worst in fast markets and thinly traded coins.

Exchanges also charge a fee on each trade, usually a percentage of its value. Many distinguish makers, whose limit orders rest on the book and add liquidity, from takers, whose orders fill at once against it; market orders are always takers. On Kraken Pro, for example, fees range from −0.02% for makers (a small rebate) to 0.80% for takers, depending on 30-day volume and the trading pair. Moving coins between wallets or exchanges adds network fees on top.

A round trip, buying and later selling, pays the spread once and fees twice, so small costs add up quickly if you trade often.

Quote-based exchange versus an order book

Not every service shows you an order book. Some wallets and instant-buy services work with quotes instead: you choose the coins and the amount, and the service offers one all-in rate, held for a few seconds. Confirm in time and you get exactly that rate, with no slippage; let it expire and you get a fresh quote.

The price of that certainty is a margin built into the rate. Kraken, for example, says the price on its instant-buy service "includes a spread, the difference between the market rate and the rate you receive". nowcoin's Exchange works this way too: it shows the rate and its fee, and holds the price for a short countdown. Whatever the service, compare what you'll receive with the market price before you confirm.

Volatility, position size and risk/reward

Volatility measures how far and how fast a price moves, and crypto's is high: by the end of March 2026, bitcoin had fallen about 40% from its October 2025 peak, according to the International Monetary Fund (IMF). Crypto also trades around the clock, so prices can move sharply while you sleep. For the forces behind these swings, see our guide to crypto and the macro economy.

That is why the size of a position, how much you put into one trade, often matters more than which coin you pick. One method is to decide in advance the most you're willing to lose on a single trade, as a small share of your account, and work backwards. If you'd accept losing $50 and your exit sits 5% below your entry, the position is $1,000.

A stop loss places that exit in the market, though a fast market can fill it at a worse price. Risk/reward compares what you could lose with what you hope to gain. Risk $50 to make $100, and you break even by being right one time in three; risk $50 to make $50, and you must be right half the time. Fees raise both bars.

Why leverage multiplies losses

Leverage means trading with borrowed money, so your position is bigger than your own stake, which is called margin. Gains and losses grow by the same factor: with 10x leverage, $1,000 controls a $10,000 position, and a 10% fall wipes out the whole $1,000. Platforms usually close ("liquidate") the position automatically before that, once losses eat most of the margin.

Liquidations can feed on each other. After October 2025's peak, the IMF found that automated closures of leveraged positions "triggered liquidation cascades in crypto derivatives markets", highlighting "the excessive use of leverage".

Regulators treat crypto leverage as especially risky. In 2018, the European Securities and Markets Authority (ESMA) capped leverage for retail clients on contracts for difference (CFDs), which pay out a price change without you owning the asset:

National regulators now apply their own permanent versions of these rules, and in February 2026 ESMA said crypto "perpetual futures", leveraged contracts with no expiry date, are likely to fall under them too. In the UK, the Financial Conduct Authority (FCA) banned the sale of crypto derivatives to retail consumers from January 2021.

Keep records for taxes

In many countries, selling crypto, and often swapping one coin for another, creates a taxable gain or loss. The IRS, the US tax agency, treats exchanging one digital asset for another as a taxable transaction, with gains counted as short- or long-term depending on whether you held the asset for more than a year. Brokers report gross proceeds on the new Form 1099-DA for transactions from 1 January 2025, and cost basis (what you paid) for certain transactions from 2026.

In the EU, the DAC8 rules require crypto-asset service providers to collect data on EU residents' transactions from 1 January 2026, with the first reports due by 30 September 2027.

Whatever your country, keep your own records. HMRC, the UK tax authority, lists what it expects for each transaction, a good template anywhere:

• the type of cryptoasset
• the date of the transaction
• whether you bought or sold
• the number of units
• the value in pounds sterling at the time
• the cumulative total you hold
• bank statements and wallet addresses

Discipline and common mistakes

The evidence on short-term trading is consistent, and it isn't encouraging: most short-term traders lose money. When EU regulators examined CFD trading, 74–89% of retail accounts typically lost money, with average losses of €1,600 to €29,000 per client. Of everyone who began day trading Brazilian equity futures in 2013–15 and kept at it for at least 300 days, 97% lost money. The SEC warns that day traders "typically suffer severe financial losses in their first months of trading, and many never graduate to profit-making status".

The common mistakes are well documented:

• Chasing rallies. The Bank for International Settlements (BIS) found that almost three-quarters of crypto app users downloaded their app when bitcoin was above $20,000, and that in the 2022 crashes large holders sold while smaller investors kept buying.
• Trading without a plan. Decide the entry, exit and size before you trade, not while the price is moving.
• Moving a stop further away in the hope that the price comes back.
• Overtrading. Every trade pays the spread and fees; the SEC notes that day traders "have high expenses".
• Believing easy-profit claims. The SEC's advice is blunt: "Don't believe claims of easy profits."
• Keeping no records, which turns tax time into guesswork.

A written plan, small positions and honest records won't make trading profitable, but they limit what a mistake can cost.