As a beginner, it is very difficult to understand the different types and ways by which you can trade your cryptocurrencies. Infact, there are different methods of placing crypto orders too. While some basic orders are easy to understand and execute, but there are some which need to be studied in detail.
Learning all types of orders is important if you want to gain huge benefits from your crypto trading. By using the various types of orders, you achieve the ability to take advantage of the situation which will help you in making money. Having placed the order will do your job and you won’t have to wait for hours for the best price for your crypto trading. In this blog, we will learn about one such order, which is Limit Order. We will see why limit orders are important in trading cryptocurrencies.
What is a limit order?
Limit Order is a type of order through which you sell or purchase an asset at a particular or better price. For buying assets using limit orders, the order is executed at the limit price or at a price lower than that. And when selling assets using limit orders, the order is completed at the limit price or at a price higher than that.
When using a limit order, you set it and forget about the trade. This is said so because you don’t have to constantly watch the charts after placing the limit order. You simply set the limit for buying or selling the asset and then you forget about it. When your desired digital asset reaches the preferred price, the trade executes on its own on your behalf.
People often confuse market order with a limit order. A market order allows for buying and selling of cryptos immediately at the going rate, but limit order lets people wait for the best price to buy or sell digital currencies. The setting of limit order or say, pre-setting of a price for the digital asset allows better control of the prices than the trader’s trade.
Let us understand limit order with the help of an example.
John wants to buy a cryptocurrency but he also doesn’t want to pay a lot. The price of that particular digital currency has been increasing and decreasing for the past few days within John’s price range but doesn’t stay there. So, rather than waiting to do the right purchase for the entire day, John can simply set a limit order for his desired price. When the price of the cryptocurrency reaches his buy price, the limit order will be executed and John can collect coins at his desired price.
What is the feature of Limit Order?
In limit order, crypto exchange platforms give the users an ability to set the order price and then set the number of coins they want to buy or the amount of real currency they want to spend for buying orders. For limit buy orders, the price is generally set below the asset’s current price and for limit sell orders, the price is set above the current price of the asset. The order remains open until the crypto’s price reaches the user’s desired price and then gets executed, unless the user does not cancel the order or the order expires (as limit orders have some definite timeout period).
A limit order can also be used to send the equivalent of a market order with a maximum or minimum price. For this, the user sets a limit price. When setting the price, the order is filled either at the market price or limit price, whichever is beneficial for the user according to the current market conditions. If the order cannot be filled at the limit price or a better price, then it will remain as an open limit order at the limit price until it is cancelled or filled.
When to Use a Cryptocurrency Limit Order?
Limit order should be used when you are unsure about the market. It is better to use a limit order when you are in doubt about how the market will be going and what its result will be. There are multiple other reasons too for using a limit order. One reason is given in the example before, where John wanted to collect digital currencies at a particular desired price. A limit order is not only used to buy cryptocurrencies, but it can also be used when you want to sell your coins or exit a position at a specific price. So, in buying as well as selling, a limit order can be used by traders and investors.
In conclusion, we can say that limit orders are very essential in cryptocurrency trading. It gives you the power to have control over your trade, assets and money. You can use it to save your time as after setting limit order you are not required to sit and watch the charts throughout the day. Limit order gives you the opportunity to sleep peacefully and still gain benefits from your digital assets and trades.