What Is a Limit Order in Crypto?
A limit order is a common function among crypto exchanges or trading platforms that enables you to determine the specific buying or selling price of your digital assets. With a limit order, you can establish your lowest and highest price when selling or buying cryptocurrencies.
A limit order can also be classified as “reduce-only” or “maker-only.” Not to be confused with a market order, which allows you to send your assets at the current market price, limit orders can ensure that your trades’ prices will stay at a range that’s most comfortable for you.
Limit orders also offer traders the opportunity to profit from trades even when a digital asset’s price falls lower than initially expected. They also allow traders to buy or sell their assets at a lower or higher price, respectively.
The concept of limit orders is also present in traditional trading. Traders set them in place to ensure that they won’t sell or buy stocks at less than desirable prices, which can result in slippage.
In this case, if the market prices aren’t aligned with an investor’s established limit order prices, the order won’t execute.
That being said, in the world of crypto trading, establishing limit orders for trades can provide you with a higher level of flexibility for your investments and minimize the risk of experiencing significant losses. This is especially helpful when trading crypto, since the market is known for its pronounced volatility.
Establishing limit orders also offers you a higher degree of control over your trades, since you’ll be the one to set the minimum and maximum price and amounts for each trade. Aside from that, you don’t have to monitor the fluctuating market prices as much, since limit orders won’t execute if the established prices aren’t met.
Limit Orders: Caveats
However, there are downsides to a limit order as well. Even if the set price is reached, there’s no guarantee that the order will be executed entirely. In some cases, the limit order will only be partially completed.
In this case, some traders usually adjust the set prices. For selling assets, they usually set the sell limit order a little higher than the market’s current price. They do this in case the asset’s value increases over time.
Meanwhile, they typically set the buy limit order slightly lower than the current price on the market. This is done in order to ensure they receive a more favorable price, in case the asset they’re trying to buy depreciates in value over time.
The Bottom Line
When trading crypto, a limit order can be beneficial for your trades. This is especially true if you don’t have time to constantly monitor the market’s prices. A limit order also ensures you can still profit from your trades, even without close monitoring.
However, depending on your specific investment strategies and goals, setting a market order can be the more suitable choice. You can learn more about market orders here.