#Educational Post
Stop-Limit Order vs. Limit Order
A limit order is an order to buy or sell a specific amount of cryptocurrency at a specified price. When you place a limit order, you are essentially specifying the maximum price you're willing to pay to buy a cryptocurrency or the minimum price for which you're willing to sell it.
Typically, traders place sell limit orders above the current market price and buy limit orders below the current market price. If you place a limit order at the current market price, it will likely be filled within a few seconds (unless it's an illiquid market).
On the other hand, a stop-limit order is an order to buy or sell a cryptocurrency when it reaches a specific price, known as the stop price, and then execute the trade at a limit price you set. The limit price is the minimum amount you're willing to accept when selling or the maximum amount you're willing to pay when buying.
The main difference between the two is that a limit order is used to specify the price at which you want to buy or sell, while a stop-limit order is used to specify the price at which you want to trigger a trade and the price at which you want to execute it.
How Does a Stop-Limit Order Work?
A stop-limit order is an advanced trading order that combines elements of a stop order and a limit order. Itâs commonly used in cryptocurrency trading to automatically buy or sell a cryptocurrency once it reaches a certain price level.
The best way to understand a stop-limit order is to break it down into parts. The stop price acts as the trigger for placing a limit order. When the market reaches the stop price, it automatically creates a limit order with a custom price (limit price).
Therefore to create a stop-limit order, you need to set two different price points: a stop price and a limit price. The order becomes active and triggers the limit order when the stop price is reached. The limit price is the price at which the order will be executed once the stop price is reached.