Crypto Glossary

Posted on September 13, 2021 in

Limit Order

A limit order allows you to establish your own price for either buying or selling an asset. Your order will be executed if the market hits the price you specified as your limit. Nevertheless, if the market does not reach the limit price that you have set, your order will not be fulfilled.

What is a limit order?

In the world of trading, it is possible to acquire or sell an asset at a defined price or higher by placing a limit order on the asset in question. In the case of buy limit orders, the order will be executed only at the limit price or a lower price, but in the case of sell limit orders, the order will only be executed at the limit price or a higher price. This requirement gives merchants greater control over the pricing at which they trade. 

By placing a purchase limit order, the investor ensures that he or she will pay the specified amount or less. The price is guaranteed; however, the order is not guaranteed to be filled, and limit orders will not be executed unless the asset price fulfills the order qualifying requirements. It is possible that the investor may lose money if an asset fails to achieve the stated price and the order is not completed. 

Limit orders’ role in cryptocurrency

To put the use of limit orders in the world of cryptocurrency trading into perspective, let’s consider the case of a trader who wishes to purchase Bitcoin at a specified price. The trader would place a limit order for Bitcoin at that specific price in order to profit from the market.

Example: If the Bitcoin price falls to 500,000 Baht and the trader wants to purchase 1 Bitcoin (BTC), the trader sets the limit price to exactly 500,000 Baht. On the other hand, if a trader wants to sell when Bitcoin reaches 600,000 Baht, the limit price on the sell-side should be set to 600,000 Baht as a minimum.

However, investors should keep in mind that if the price is set higher than the current price for buys or lower than the current price for sells, it may result in an immediate fill since a better price is available than the limit price specified. 

Limit orders have the drawback that if the limit price is not met by an interested buyer or seller within a certain time period, the order will not be fulfilled and will be canceled. Second, and probably more crucially, when setting limit orders, the importance of timing cannot be overstated. Timestamps are assigned to each and every order placed in an order book on an exchange.

Orders that are approved later take precedence over trades that were placed earlier, even if they have the same limit price as an order that was put earlier in the trading session.

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