If you have any experience in cryptocurrency trading, you must be familiar with buying or selling cryptocurrencies in various ways. One such method is limit orders, which enables the traders to purchase or sell a crypto coin at a specific price or better than that. But what is limit order in crypto mean?
Hopefully, this article will help you understand – what is limit order in crypto is? And how does it work?
Learn everything you need to know about limit orders through this guide.
What Is Limit Order In Crypto?
A limit order is one order with a particular buy or sells price. To place a limit order, you have to set a higher or lower price that you are willing to buy or sell. Your bid order will then be placed on the order book and will only be effectuated if the market price reaches the limit value or gets better than that.
Dissimilar to market trades, where trades are executed instantly at the current price, a limit order will give you more control over the effectuated price. Since limit orders are automated, you don’t have to analyze the market 24/7 or agonize about missing a purchase or sell opportunity when you are asleep.
Whereas there is no guarantee that your limit order will be implemented. Because if the market price never reaches close to your limit order, your trade will then remain unfilled on the order book.
And a limit order can be placed for a month, but it also depends on the crypto exchange you are using. Limit orders are suitable for calm investors or traders who want to HODL by purchasing the crypto at a lower price.
How Does Limit Order Functions?
When a limit order is placed, it will be instantly filled in the order book. But, it will not be placed until the crypto price reaches the specified limit price or above that.
For example, if you think of selling 10 BTC at $600, the current market price is $500. You can place a BTC sell limit order at $600. Your order will be implemented when the BTC price reaches your target price or above that, depending on the market cash flow.
And if there are other BTC sell orders placed above yours, then the system will implement that order first, and your limit order will be filled afterward with the remaining cash flow.
Another thing to understand when placing a limit order is the order’s expiration date. Limit orders can only last for 90 days unless you notice the market moment closely; you might end up purchasing or selling at a low price because of market volatility.
To understand this consider an example- the current market price of BTC is $500, and you placed a sell limit order of 10 BTC at $600. After six days, the BTC price increased up to $700. So, now because the market price has crossed the limit price you placed, your order was implemented at $600.
Now, your profits will be limited compared to the target price you placed six days ago. That’s why it is said to review your open limit orders every time to keep up with all the changes in the ever-changing market condition.
Further, if you are interested click here to know about What Is Market Order In Crypto?
Stop Limit Vs. Limit Orders
A stop-limit order merges the features of a stop order and a limit order. The stop price will instantly trigger a limit order when the stop price is achieved.
The order will then be implemented if the market value matches the limit price or is above that. If you don’t have enough time to evaluate your portfolio closely, you can choose to use stop limit orders to limit the losses you can experience on an exchange.
When selecting a stop-limit order, you have to mention two prices- the stop price and the limit price. The main difference between the stop limit orders and the limit orders is that the former will only place limit orders if the stop price is achieved, while the latter will be instantly placed in the order book.
For example- if BTC is exchanging at $600 and you have placed a sell stop-limit order with a stop price of $590. Then, it means that if the BTC value drops to $590, the system will automatically set down a sell limit order with a limit price you earlier specified. But, there is no guarantee that your order will be filled. Because if the market lives very fast, there will be chances that your order remains unfilled.
When To Use A Limit Order?
You can use limit order in following times-
- When you wish to buy or sell your crypto at a specific price other than the market price.
- When you are not in a hustle to sell or purchase.
- When you want to lock in unrealized profits or you want to lower the potential losses.
- To attain a dollar-cost averaging (DCA) effect, you want to divide your orders into smaller limit orders to attain a dollar-cost averaging (DCA) effect.