Limit Order Explained

2 August 2023

8m read

An order with a defined limit price is known as a limit order and is placed on the order book. You set the upper price limit. Only if the market price exceeds your limit price (or higher) will the trade be carried out. As a result, limit orders can be used to purchase or sell at a price different from the going market rate.
Limit orders are placed on the order book and do not immediately execute, in contrast to market orders, which cause trades to be made at the current market price. Limit orders typically lead to cheaper fees because you trade as a maker rather than a taker.


Are you having trouble deciding which order type to use when purchasing ETH, XRP, or any other cryptocurrencies? Before placing an order, it's important to be aware of the differences between the various order types because they can all have a varied impact on your trades. Consider utilizing limit orders to restrict the price at which you can purchase or sell a coin if you want more control over your trades.

Limit Order

An order with a set purchase or sell price is known as a limit order. You must establish a maximum and minimum price at which you are willing to purchase or sell an asset in order to make a limit order. Once on the order book, your order will only be carried out if the market price hits the limit price (or above).
A limit order gives you greater control over the execution price than market orders, which immediately execute trades at the current price. You don't need to keep an eye on the market constantly or worry that you'll miss a buy or sell opportunity while you're sleeping because limit orders are automated.
The execution of your limit order is not guaranteed, though. Your trade will not be filled on the order book if the limit price is never reached by the market price. A limit order can typically be set up for up to a few months, however, it varies depending on the cryptocurrency exchange you're using.

The Process for a Limit Order

A limit order will be immediately added to the order book after being submitted. But unless the coin price reaches the specified limit price (or above), it won't be filled. For instance, say, the price of 10 ETH is $1000 and you wish to sell them for $1100. An ETH sell limit order of $1100 is permissible. Depending on market liquidity, your order will be carried out once the ETH price reaches the target price or higher. The system will execute other ETH sell orders made before yours if there are any. Your limit order will then be filled using the leftover liquidity.
The order's expiration date is another factor to take into account when establishing a limit order. Limit orders typically have a maximum duration of 90 days. Market volatility may cause you to buy or sell at a less desired price if you don't keep a careful eye on the market. For instance, say, the price of 10 ETH is $1000 at the moment and you have a sell limit order for 10 ETH at $1100. After a week, ETH's value increased to $1200. Your request was filled at $1100 since the market price has surpassed the limit price you specified. In this instance, the goal price you set one week previously restricted your earnings. To keep up with the constantly shifting market conditions, it is advised to periodically examine your open limit orders.

Limit Orders vs. Stop-Loss Orders

When trading cryptocurrencies, you can use a variety of orders, including limit, stop-loss, and stop-limit orders.
When the market reaches your stop price, a stop-loss order, which is a market order, is triggered. When the price of the coin reaches the stop price you specify, it is an order to buy or sell the coin at the market price.
A stop-loss order becomes a market order and executes at the current market price when it is triggered. Your order won't be filled if the stop price isn't met. To reduce potential losses in the event that the market moves against your position, utilize sell-stop orders. Additionally, they can be used as a "take-profit" order to close a position and safeguard unrealized gains. Additionally, buy-stop orders can be used to enter the market at a discount.
A limit order executes at the limit price you specify (or better), but a stop-loss order executes (as a market order) at the price that is in effect at the time it is placed. However, keep in mind that your order can be filled at a price that is significantly different from the trigger price if the market price fluctuates too quickly.

Limit Orders vs. Stop-Limit Orders

The characteristics of a stop order and a limit order are combined in a stop-limit order. A limit order will be automatically triggered whenever the stop price is achieved. If the market price is equal to or greater than the limit price, the order will then be fulfilled. Stop-limit orders can help you restrict the losses you can sustain on a trade if you don't have the time to carefully monitor your portfolio.
You must specify two prices when placing a stop-limit order: the stop price and the limit price. Stop-limit orders and limit orders differ in that the latter are immediately entered on the order book while the former only do so if the stop price is reached.
If ETH is trading at $1000, for instance, and you place a sell stop-limit order with a $900 stop price. As a result, the system will automatically set up a sell limit order with the limit price you specified or higher if ETH declines to $900. Your orders won't necessarily be fulfilled, though. Your order might not be filled if the market is moving too quickly.

Stop-Limit orders against Stop-Loss orders

Based on your stop price, stop-limit and stop-loss orders are both triggered. The stop-limit order, on the other hand, will produce a limit order if it is activated, whereas the stop-loss order will produce a market order.

When to Place a Limit Order

A limit order can be used in the following situations: * You want to purchase or sell at a certain price above or below the current market price; * You are not in a rush to buy or sell right away; * You want to lock in unrealized gains or reduce prospective losses; * If you wish to get the dollar-cost-averaging (DCA) effect, you need to divide your orders into smaller limit orders.
You want to sell something at a certain price above the going market price or purchase something at a certain price below the going market price;
You don't need to buy or sell right away; You want to lock in unrealized gains or lessen the possibility of losses;
If you wish to get the dollar-cost-averaging (DCA) effect, you need to divide your orders into smaller limit orders.
Keep in mind that your order might not always be filled, even if the limit price is reached. Everything is subject to market circumstances and general liquidity. Your limit order might only be partially filled in specific circumstances.

Concluding Remarks

When you want to purchase or sell a coin at a higher price, a limit order might be an excellent trading instrument. It can be applied to either increase unrealized gains or decrease loss potential. However, you should comprehend the many possibilities and consider how each one fits into your overall portfolio and trading plan before selecting an order type.

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