What is a Limit Order?
So, you’ve adopted cryptocurrencies and want to enter the world of trading. But before you jump in, it’s important to learn about how things work. Limit orders are one of the most important concepts for traders and if you don’t know about them, you are going to be at a big disadvantage when trading. By reading this article, you should have a better picture of what they are and how they can help you get the best market prices when speculating on the price of digital assets.
A limit order will only be completed at a specific price or better. It allows the trader to have better control over the prices at which they trade. A limit order tends to have a high execution rate, but this is not guaranteed. There are four (4) types of limit orders: Limit Buy Order, Limit Sell Order, Sell Stop Loss Order, and Buy Stop Loss Order.
You, the trader, want the order filled at a certain price, but you don't want it to go any lower. If you agree to buy at a specific price, and if the market drops down to that level, it gets filled. But if the market only goes halfway there and stops moving, then it looks like you’re going to have to wait.
In contrast with a market order, whereby a trade is executed at the prevailing market price without any price limit specified, a limit order provides that your stock order must be executed at a specified price (the limit price) or better. A stop order is an order to buy or sell a security once the price of the security reaches a pre-determined level, known as the stop price. When the asset hits the stop price, it automatically becomes a market order and will be executed at the best possible current market price.
The takeaway here: If there’s something you want to buy, set your limit lower and vice versa with something that you want to sell. And if it never stops going up, don’t fret.
Market orders, limit orders and stop-loss orders are essential tools for any trader and investor. Although each of them has a specific purpose and reason to be used, combining smaller order sizes with these three basic types of orders can provide traders and investors with a much broader understanding of the market and its movements. Market, limit, and stop-loss orders have different strengths and weaknesses. You can use your preferred order type or mix several of them together in order to reduce market risk.
In the end, your choice should come down to understanding your order type preferences. Do you trust your ability to pick price points with market orders? Do you need a highly liquid and well-developed exchange with low-priced trades? Or do you want to be able to save money with limit orders? Each of these options has a place in the crypto world, but which one is right for you may be something that only you can say.