What is a Limit Order?

Introduction 

Are you finding it difficult to decide which order type to use when buying bitcoin (BTC) or ether (ETH)? Different order types can affect your trades in different ways, so it’s crucial to understand the distinctions between them before you place an order. If you’re looking for greater control over your trades, you can consider using limit orders to cap the buying or selling price of a coin. 

Limit order definition

A limit order is an order with a specific buy or sell price. To place a limit order, you need to set a maximum or minimum price you’re willing to buy or sell an asset. Your order will then be placed on the order book and will only be executed if the market price reaches the limit price (or better). 

Unlike market orders, where trades are executed instantly at the current price, a limit order gives you more control over the execution price. As limit orders are automated, you don’t have to watch the market 24/7 or worry about missing a buy or sell opportunity while you sleep. 

However, there is no guarantee that your limit order will be executed. If the market price never reaches the limit price, your trade will remain unfilled on the order book. Typically, a limit order can be placed for up to a few months, but it depends on the crypto exchange you are using.

How does a limit order work?

When a limit order is submitted, it will be placed on the order book immediately. But It won’t be filled unless the coin price reaches the specified limit price (or better). For example, you want to sell 10 BTC at $600, and the current price is $500. You can place a BTC sell limit order of $600. When the BTC price reaches the target price or above, your order will be executed depending on market liquidity. If there are other BTC sell orders placed ahead of yours, the system will execute those orders first. Your limit order will be filled afterward with the remaining liquidity.

Another thing to consider when placing a limit order is the order’s expiration date. In general, limit orders can last up to 90 days. Unless you watch the market closely, you might end up buying or selling at a less desirable price due to market volatility. For example, the current market price of BTC is $500, and you placed a sell limit order of 10 BTC at $600. After a week, the price of BTC surged to $700. As the market price has crossed the limit price you set, your order was executed at $600. In this case, your profits were limited by the target price you placed a week ago. Therefore, it is recommended to review your open limit orders from time to time to keep up with the ever-changing market conditions.

Limit orders are GTC (Good Till Cancel) mode, i.e. valid until canceled, meaning that the transaction of the order placed by the user will always remain open until the order is filled or until the user manually cancels the order. A GTC order can be canceled at any time before it is filled, and the remaining unfilled portion can be canceled after it is partially filled. This strategy is suitable for traders who have an exact buy or sell price target and the current market price has not yet reached the expected level. Unlike the stock market where orders are automatically canceled at the end of the trading day, the digital currency market operates 24/7, so the GTC strategy is also the default option for limit orders on digital currency trading platforms.

Maker only (Post only): It will not be filled immediately in the market, ensuring that the user is always a Maker and if the order will be filled immediately with an existing order in the market, then the order will be canceled.

Example of a limit order

Case 1: Assuming that the current BTC market price is 50,100 USDT, if a user wants to buy at 50,000 USDT, he can select order type “Limit” and set the buy price as 50,000 USDT. After the order is placed, the order will be filled automatically when the price drops to 50,000 USDT or below.