What is a limit order in cryptocurrency trading - how to use it right?

What is a limit order in cryptocurrency trading - how to use it right?

If you’re new to trading cryptocurrency, then you may not be familiar with all of the ways you can do it. While standard orders are certainly okay, if you want to get serious about trading then you should learn about all of the order types.

By using these you can better take advantage of situations which could make you money, and you can have orders active which can do the work for you in waiting for the best price. What is a limit order? How does it work? Let’s find out!

What is a cryptocurrency limit order?

Interested in buying or selling a cryptocurrency but only for a certain price? If this is the case for you, then select a limit order instead of a market order. While a market order will buy or sell coins and tokens immediately for the going rate, a limit order is for those who are willing to be more patient to get the best price.

You can even use this as a sort of ‘set it and forget it’ order if you want. This makes it so you don’t have to constantly watch the charts. You can set your limit order to buy or sell and then go about your business. If your desired asset reaches the right price, then the trade will execute for you.


How does it work?

Investors should keep in mind that limit orders are not guaranteed to activate. This type of order will only be triggered if your order reaches the price you set. If the coin or token you want reaches a certain price threshold, then your order will go into effect. This means if you set a sell price of let’s say $5, then your limit order will only sell if the price reaches $5.


Cryptocurrency limit order example

Let’s say that Jim wants to purchase a cryptocurrency token, but he doesn’t want to pay too much. The price of this token has been jumping up and down for several days within his price range, but it doesn’t stay there.

Instead of waiting around for the right purchase price for the entire day, Jim can set a limit order for that price. When the price is driven down to his buy price, the order will execute, and Jim can accumulate tokens at his desired price.


How to place a limit order?

Placing a limit order in crypto is very easy. When you go to buy or sell your assets, there should be an option right next to the market order for limit orders. Typically, a market order will fill the price for you for whatever the current market value is.

To make this a limit order, just fill in the price per coin or token with your desired price. Many times this price will be in Bitcoin and not in USD, so you’ll need to figure out how much you want to pay in BTC to make a limit order.

When doing so, make sure that you’ve done everything properly, because moving the decimal even one place by accident can have disastrous consequences. It’s usually best to use a converter to figure out how much you want to pay in BTC, and then copy paste the number to avoid mistakes.

You should keep in mind however that there is a chance that your order will not execute, even if the asset does hit your price. If there are other limit orders in before yours for the same price, then those will trigger first. If the supply at that price is not adequate to fill all of the orders, then your limit order will not trigger.


Can a crypto limit order be partially filled?

Yes. If your limit order is triggered but the price rises before it is completely filled, then you could receive a partial number of coins or tokens. If this happens your limit order will remain active, and the exchange will attempt to fill it the next time that the drop happens. In many cases limit orders can be set indefinitely, but there may be occasions where you can set a time limit as well.


Can you change it?

Changing a limit order is easy, and most cryptocurrency exchanges will make it a simple task to edit the price. Some software can even automatically edit your price based on the changing market. All you’ll need to do to modify your limit order is to change the terms to your new ideal.


Can you cancel it?

Canceling a limit order is also simple. In most cases simply clicking cancel will be enough to pull it from the system. This takes only a couple of seconds, and then you’ll be free to set a new limit order.


How do you stop a limit order?

If your limit order is already filling, then it may be too late. Though in most cases you can stop it before it fills completely if you’ve made an error. If the order has already executed, then you’ll be stuck with the buy or sell, and you’ll need to create a new order to undo what you’ve done.


When to use a cryptocurrency limit order?

It’s a good idea to use a limit order when you’re not sure how the market will be acting. There are of course several reasons why you’d do this. In our earlier example, Jim wanted to accumulate coins for a specific price. However, if you were looking to exit a position for a specific price, then you could also use a limit order.


Limit order vs stop loss in crypto

If you need to use an order type which will limit your losses, then a stop loss is what you’re after. Using this order type you can sell if a position falls below a certain amount, protecting your capital from disaster. A limit order will not do this as sell orders here will be triggered for any amount at the limit price or higher, not lower.