update 19 August 2021

What You Need To Know About Limit Orders in Crypto Trading

Cryptocurrency trading is not for the faint-hearted. Even those who have been at it for a while need some techniques to profit from digital currencies.

Crypto trading features a variety of techniques, including limit orders. For many investors, limit orders are an essential part of crypto trading success. These orders make it easier for investors to control how much they spend or earn while trading.

So, do you know about limit orders and how they can benefit you? This article will highlight their role in crypto trading and how they differ from other trading orders. Here is everything you need to know about limit orders in crypto trading. 

Understanding Limit Orders

Limit orders are a type of trading order that allows traders to acquire or sell cryptocurrencies at a specified price or even a higher rate. An individual cryptocurrency user sets the limit price in their limit order. When a cryptocurrency trader puts a limit order, a trade occurs only when the market price is equal to or higher than the specified amount. A trader will buy at a limit price or a lower price when using a buy limit order. When selling, a trader can only sell at the limit or higher price.

The two widely-known types of limit orders are GTC (Good Till Canceled) and IOC (Immediate or Cancel). GTC orders are left as open orders during the trade until they are canceled or filled by the market participant who gets hold of the order. When the exchange occurs, IOC orders drop immediately, and the trader gets back any remaining quantity of the order.

FOC ( Fill or Kill) is another type of limit order. In this type, the order does not implement unless it reaches the entire amount of the limit order. 

Placing a Limit Order and Using it

You should follow the following steps when placing and using a limit order:

 Step 1: Go To Your Trading Platform

Access your trading platform online. Click on either the tab named trade or the one titled, place order on your app.

 Step 2: Point Out The Security Being Traded

Identify the security for which you are ready to put a limit order. You should figure out if you are selling or buying stock.

 Step 3: Select a Limit Price

Choose whether to set the buy limit order or the sell limit order. You should not select an unreasonably high or low price for your stock. When placing a buy limit order, select the highest amount you are willing to pay for a security. Go for the smallest amount you are ready to accept for a stock when setting a sell limit order. 

 Step 4: Pick a Duration

Select a period suitable the security will get to your limit price. You can only make an order available for one day. Use good till canceled (GTC) if you want to extend the duration of the order.

 Step 5: Submit Your Order

Ensure you have specified the security you want to trade, your limit price, whether you are purchasing or selling security, and the order’s duration. Confirm if your details are correct and then submit your order.

 Step 6: Assess Your Order

 Check your order to know when filled. See whether it fills partially or not.

When Do You Use Limit Orders?

Limit orders are best to use when a trader is not in a hurry. It is not possible to instantly implement these orders. A trader using limit orders saves on fees since they wait on the market fees to be cheap to buy cryptocurrencies.

Other Trading Orders

Besides limit orders, crypto traders can use several other techniques when trading their cryptocurrencies. Two other popular orders include market orders and stop orders.  

Market Orders Vs. Limit Orders

Market orders allow traders to sell or buy cryptocurrencies at the current market price, with immediate effect.

In market orders, cryptocurrencies trade at whatever the market price is, while in limit orders, a trade occurs when the market price reaches the limit price.

Market orders implement immediately, while limit orders do not execute instantly.

Another significant difference between market orders and limit orders is that the latter implements only when the order gets to the set amount. Market orders may be partly filled at different prices and are often outlined in the fills panel. On the other hand, limit orders are contained in the order books.

When Do You Use Market Orders?

You may use market orders when you want your order to be implemented quickly, and you do not mind the available market price. Market orders are also the best to use when selling a small number of cryptocurrencies. 

Use market orders when selling a highly liquid stock with a limited bid-ask spread. Bid-ask spread is the difference between the highest price that a buyer is willing to give for the cryptocurrency and the lowest price that a seller is ready to take for the cryptocurrency.  

Stop Orders Vs. Limit Orders

A stop order is an order where there is a set specified price as a stop price. When the stock reaches the future price, transaction request triggers, and executes. There are three known types of stop orders: stop limit, stop market, and stop loss. 

A stop-limit order implements a crypto transaction at a specific set price or a better price. In contrast, a stop market order performs an order only to a particular set amount. A stop-loss order triggers when the cryptocurrencies fall in price, and the cryptocurrencies liquidate to avoid the loss.

One notable difference between a stop order and a limit order is that a stop order transaction is not available to the market unless a request is triggered. In contrast, the limit order transaction is visible to the whole cryptocurrency market to the stop order.

Limit orders do not implement unless the market price reaches the specified amount, while short term fluctuations can trigger stop orders. Stop orders trade if the price moves beyond the set price, while Limit orders trade when the market price is equal or better than the set price.

When using limit orders, investors intend to lock in the price they want until the orders reach their specified amount or a better price. In contrast, when using stop orders, investors intend to limit losses.

When Do You Use Stop Orders?

Cryptocurrency exchangers use stop loss to restrict how much they can lose on a profitable transaction. Crypto traders also use stop orders to buy assets that will have a possible increase in price in the future with a likelihood to earn a lot of profit.

Conclusion

Cryptocurrency trading is a complex process, but limit orders ease it. Limit orders are suitable for trading volatile stocks because they protect your orders by controlling the price they implement.

Limit orders do away with a trader’s risk of having their orders executed at a price they do not want. Therefore, traders expect their orders to be filled at a specific amount because limit orders do not implement unless the market price is higher or equal to the set price.

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From the above context, it is clear that limit orders are efficient for crypto trading. Why don’t you try out limit orders when making your next crypto trade? Limit orders are the way to go!

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