If you’re reading this, it probably means that you have an account with at least one trading venue offering different order types. For example, on top of Binance, you can place a limit order, a market order or a stop-limit order.
For example, on top of Binance, you can place a limit order, a market order or a stop-limit order. With Bitfinex, there are limit, market, stop, stop-limit, fill or kill order types at your disposal; OKEx offers limit, advanced, market, stop-limit and many more.
That being said, a limit order is one of the most popular crypto traders’ tools together with a market order where you get filled for the quoted price and a stop order that doesn’t necessarily have to be filled.
In this piece, we’ll cover what the limit order does exactly.
What is a limit order?
According to Investopedia, “A limit order is a type of order to purchase or sell a security at a specified price or better. For buy limit orders, the order will be executed only at the limit price or a lower one, while for sell limit orders, the order will be executed only at the limit price or a higher one.”
With a limit order, your priority is the right price, not the timing whereas a market order requires you to focus on executing the order at a current rate.
The thing with limit orders is that because of price restrictions no-one can guarantee you that your limit order will be filled or won’t be filled only partially. It all depends on the market movements of the asset’s price.
Sell limit order
Sell limit order sells a fixed amount of your assets at a designated price or higher once the limit is triggered.
The goal here is to sell an asset with a maximum profit. Basically, you’re telling an exchange: “This is the minimum price I am willing to sell my coins at.”
With that said, your coin will continue to trade long enough for your order to be filled, but again, if the price of the asset goes down, it might not get filled. You will still own your assets instead of selling them at an unfavourable price.
So, sell limit order is great to maximize your take-profit targets. If the asset’s price reaches the limit price, it will most likely continue to rise, which traders placing limit orders use to their advantage.
Buy limit order
In a similar way to a sell limit order, traders place buy limit orders to avoid a worse price than they expect.
Basically, buy limit order ensures that you purchase an asset at or below a specified price, which gives you control over how much you pay.
Let’s say you want to buy one Bitcoin Cash (BCH) in the scenario where all the indicators show the beginning of a bullish market. In order to buy at the cheapest price possible under the circumstances, you place a buy limit order below the trending price and wait.
If the price goes up, your order will not get filled, and you will miss out on an opportunity to make profits. On the other hand, a buy limit order will give you an opportunity to purchase an asset at a lower price.
Bitcoin limit order
With Bitcoin limit order, you can set a level at which you want to trade a certain amount of Bitcoins.
Say, the market price of one Bitcoin is $10K, but you want to buy it for $8K. Just place a limit order at the preferable price and wait for the market to reach this level. Once the desired price is triggered, your Bitcoin limit order will get executed at the set price or lower.
It may happen, though, that your limit order will not get filled or will get filled only partially because the market is very volatile.
If you can’t buy one Bitcoin for $8K, because the price of one asset increased to $11K, the order will get executed partially.
To sum up…
As you see, in cryptocurrency markets, limit order is as popular as in traditional trading. So you can use it on top of the most popular crypto exchanges, such as Binance or Bitfinex.
In comparison to a market order that is about to get filled no matter what, with limit orders, traders secure a price they want to trade an asset at. However, this approach doesn’t guarantee that the order will get filled.
Sell limit orders are good if you want to sell your coin at a specific price and higher than that. As for buy limit orders, in a similar vein, they are good to buy an asset at a specific price and lower than that.
So, it’s fair to say that although limit orders have the disadvantage of not getting filled, if they are filled, then they will be at the price you set.