What is a Limit Order or Limit Order?

One of the technical terms in the crypto world that beginners must understand is limit orders. What is a limit order and how do I use it? Let's take a look!

Understanding what a limit order is

Limit orders are orders to buy or sell an asset at a certain price. When placing a limit order, you must set the desired maximum or minimum price for the buy or sell transaction. 

After that, your order will go into the order book and will only be executed if the market price reaches the limit price (or better).

Also read: What is the Limit, Market, Trigger Order method?

Limit Order Opportunities

Unlike market orders that immediately execute a trade at the current price, limit orders provide more control over the execution price. Because limit orders are automated, you don't need to constantly monitor the market or worry about missing trading opportunities during your sleep.

However, keep in mind that there is no guarantee that a limit order will be executed. If the market price does not reach the limit price, your order will remain stuck in the order book. Generally, limit orders can be valid for several months, depending on the crypto trading platform used.

Also read: Understanding what candlesticks are and how to understand them

How Limit Orders Work

When a limit order is sent, it goes directly into the order book. However, the order will not be filled unless the coin price reaches or exceeds the specified limit price. 

If you are unable to actively monitor the market, you may end up executing transactions at less than desirable prices due to market volatility. 

Stop-Loss Orders vs Limit Orders

There are various types of orders that can be used in crypto trading, such as limit orders, stop-loss orders, and stop-limit orders.

A stop-loss order is a market order that is activated when the market reaches the stop price you set. This order is used to buy or sell coins at market price after reaching a preset stop price.

When activated, a stop-loss order will turn into a market order and be executed at the current market price. If the stop price is not reached, your order will not be executed. Sell ​​stop orders can be used to limit potential losses if the market moves against your position. 

This order can also be used as a “take-profit” order to exit a position and protect unrealized profits. Buy stop orders can also be used to enter the market at a lower price.

The difference between a limit order and a stop-loss order is that the former will be executed at the set limit price (or better), while the latter will be executed (as a market order) at the current market price. 

However, keep in mind that if the market price changes too quickly, your order may be filled at a price that is significantly different from the trigger price.

Also read: What is Slippage?

When to Use Limit Orders?

First, you want to buy or sell at a certain price that is different from the market price. Then, you don't have the urgency to immediately make a transaction.

After that, you want to lock in unrealized profits or limit potential losses.

You want to split the order into several small limit orders to achieve the dollar-cost averaging ( DCA ) effect.

Also read:

What is Mainnet in Blockchain & Why is it Important?

Understanding Support and Resistance: The Key to Successful Crypto Asset Trading

What is Bullish Divergence in Crypto Trading?

What is Danksharding and the Features It Has

DISCLAIMER: This article is informational in nature and is not an offer or invitation to sell or buy any crypto assets. Trading crypto assets is a high-risk activity. Crypto asset prices are volatile, where prices can change significantly from time to time and Bittime is not responsible for changes in fluctuations in crypto asset exchange rates.