Trading Guides


A guide to limit orders in cryptocurrency trading

How do limit orders work in cryptocurrency trading? Do they differ from market orders and stop orders? Learn everything you need to know with this guide

If you have some experience with cryptocurrency trading, you’ve probably noticed traders can acquire or sell cryptocurrencies in a variety of ways.

One such way is through limit orders, which allow traders to purchase or sell a cryptocurrency at a specified price or better.

Today, my goal is to discuss what limit orders are, how they work, and the major differences between simple market orders, limit orders, and stop orders.

Hopefully, this guide will help you understand how to purchase cryptocurrencies using limit orders when trading.

By using a number of different methods to trade your cryptocurrency, you could seriously increase your return on investment (ROI).

Limit orders in cryptocurrency trading

A limit order is a type of exchange order that allows traders to purchase or sell a cryptocurrency at a specified price or better.

According to Investopedia, “A limit order will only be executed at the limit price, or a lower one; when selling, the order will be executed only at the limit price or a higher one. This stipulation allows traders to better control the prices they trade.”

By using a buy limit order, the investor or trader is guaranteed to pay that price or less. While the price is guaranteed, the filling of the order is not, and these orders will not be executed unless the cryptocurrency price meets the order qualifications.

Essentially, limit orders are great for patient investors and for those who want to hodl by purchasing cryptocurrencies at cheap prices.

However, there is a risk of missing out if the market turns around. If the asset does not reach the specified price, the order is not filled and you may miss out on the trading opportunity.

Limit orders vs market orders

When cryptocurrency investors and traders purchase cryptocurrencies, the most common way of doing so is through a simple market order.

Simply put, market orders are transactions that execute as quickly as possible at the present or market price.

A market order deals with the execution of the order – the price of the cryptocurrency is secondary to the speed of completing the trade.

A limit order deals primarily with price. If the asset’s value is currently resting outside of the parameters set in the limit order, the transaction does not occur.

Therefore, the probability of missing a trading opportunity increases greatly with a limit order. However, there is much less risk associated with limit orders since emotions are taken out of the equation.

To better understand the role of emotions in trading, check out this article.

Limit orders vs stop orders

Stop orders come in a few different variations, but they are all considered conditional based on a price that is not yet available in the market when the order is placed. Once the future price is available, a stop order will be triggered.

A stop order will turn into a traditional market order once your stop price is met or exceeded. A stop order can be set as an entry order as well.

So if the price of a cryptocurrency is rising, a stop market order could be set above the current market price and the trade will be executed once your stop price has been met.

The key difference between a limit order and a stop order is the visibility of the transaction. While the former is visible to the entire market, the latter is not until the transaction is triggered.

Disclaimer: The views and opinions expressed by the author should not be considered as financial advice. We do not give advice on financial products.