Carefully! Lots of text.
A limit order is placed in the order book with a specific limit price that is set by the user. In this case, the order will be executed only if the market price reaches or exceeds the limit price. Thus, limit orders are used to buy at a lower price or sell at a higher price relative to the market.
Unlike market orders, where trades are executed instantly at the current market price, limit orders are placed on the order book and take a certain amount of time to complete. In most cases, limit orders reduce fees because users trade as makers rather than takers.
Introduction
Which order type is better to use when buying Bitcoin (BTC) or Ethereum (ETH)? Different order types can affect trades differently, so it is important to study them carefully. A limit order is used to manage trades and be able to control the price of buying or selling a coin.
What is a limit order?
A limit order is an order with a specific buy or sell price. To place a limit order, you must set a maximum or minimum purchase or sale price for an asset. The order is then placed in the order book and will only be executed if the market price reaches or exceeds the limit price.
Unlike market orders, where trades are executed instantly at the current market price, limit orders allow you to control the price of selling or buying an asset. At the same time, the execution of a limit order occurs automatically, relieving users of the need to monitor the market around the clock.
However, there is no guarantee that a limit order placed will be filled as the market price may never reach the limit order. Typically, a limit order is placed for up to several months, but it all depends on the specific cryptocurrency exchange.
How does a limit order work?
Once a limit order is confirmed, it is immediately placed in the order book. However, it will not be filled if the coin price does not reach the specified limit price. For example, you want to sell 10 BNB at $600 when the current price is $500. This way, you can place a limit order to sell $600 worth of BNB, and when the BNB price reaches the limit, the order will be executed based on market liquidity. The order of orders depends on the time they are placed. When it's your turn, the limit order will be filled with the remaining liquidity.
When placing a limit order, you should also consider its expiration date. Typically, limit orders can last up to 90 days. It is necessary to closely monitor the market, as its volatility may lead to the purchase or sale of an asset at a less attractive price. For example, you place a limit order to sell 10 BNB at a price of $600 when the current market price is $500 per unit. A week later, the price of BNB rises to $700, causing the set market price to cross the limit price and the $600 order to be filled. In this case, profits are limited to the target price posted a week ago. Therefore, it is recommended to check your open limit orders from time to time to keep up with constantly changing market conditions.
Stop loss order and limit order
There are different types of orders for cryptocurrency trading. These include limit order, stop loss order and limit stop order.
A stop loss is a market order to buy or sell a coin at the market price, which is activated when the market reaches the set stop price.
When activated, a stop loss order turns into a market order and is executed at the current market price. If the stop price is not reached, the order will not be executed. Stop sell orders can be used to minimize potential losses caused by changes in market position. They can also be used as a take profit order to exit a position and protect unrealized profits. In addition, buy stop orders can be used to reduce the price of entry into the market.
The difference between a limit order and a stop loss order is that the former will be executed when the limit price is reached or exceeded, while the latter will be executed at the current market price (like a market order). However, if the market price changes too quickly, the order may be executed at a price that is significantly different from the activation price.
Limit stop order and limit order
A limit stop order combines the functions of a stop order and a limit order: when the stop price is reached, the limit order is automatically activated. In this case, the order will be executed only if the market price reaches or exceeds the limit price. A limit stop order allows the user to cut losses without having to constantly monitor the portfolio.
When placing a limit stop order, you need to determine two prices: the stop price and the limit price. The difference between stop limit orders and limit orders is that the former is placed only when the stop price is reached, while the latter is instantly placed in the order book.
Let's imagine that you place a sell limit stop order with a stop price of $590 when the market value of BNB is $600. This means that if BNB drops to $590, the system will automatically place a limit sell order with the specified limit price (e.g. $585). However, there is no guarantee that a limit order will be executed, for example, in the event of too sudden changes in the market.
Limit stop order and stop loss order
Both a limit stop order and a stop loss order are activated once the stop price is reached. However, a limit stop order, when activated, creates a limit order, and a stop loss creates a market order.
When to use a limit order
A limit order can be used in the following cases:
You want to buy or sell an asset at a price that differs from the market price.
You are in no rush to buy or sell.
You want to lock in unrealized profits or minimize possible losses.
You want to split the orders into smaller limit orders to achieve the dollar cost averaging (DCA) effect.
Keep in mind that even if the limit price is reached, the order may not always be executed. It all depends on market conditions and overall liquidity. In some cases, a limit order may only be partially filled.
How to Place a Limit Order on Binance
Let's say you want to buy BNB at a lower price than what is currently being offered. In this case, you can place a limit order to buy and specify a maximum price.
1. Log into your Binance account, open the [Trading] tab in the top bar and select [Classic] or [Advanced] interface. For this example we will use [Classic].
2. Go to the search bar on the right side of the screen and enter “BNB”. Select a BNB trading pair. The example uses [BNB/BUSD].
3. Scroll down to the [Spot] field and click [Limit]. Next, enter the required amount. You can also set the purchase amount using the percentage buttons to easily place a limit sell order for 25%, 50%, 75% or 100% of the balance. Click [Buy BNB] to place your order.
4. A confirmation will then appear on the right side of the screen and the market order will be placed in the order book.
To check your open orders, scroll down to the [Open Orders] tab. A limit order will only be executed if the market price reaches the limit price. Otherwise, the limit order will remain open.
Summary
A limit order is an excellent trading tool for buying and selling coins at a specific price. It is used to maximize unrealized profits or limit potential losses. However, before choosing an order type, it is important to explore the different options and evaluate how each affects your portfolio and trading strategy. To learn more about the different order types, check out the article Order Types and How They're Different.
