What is a Limit Order in Crypto? Limit Orders vs Market Orders

Investing is evolving. Not only are the traditional investment instruments undergoing change, but also the emergence of new assets (such as crypto assets) is changing the way we trade and invest. The crypto markets alone see a daily trading volume of tens and millions of dollars, as the newest asset keeps growing in popularity and gains mainstream adoption.

With the rise of the crypto space, there has been a surge in demand from traders to include various trading options on crypto exchanges. This included introducing order types where you have greater control over your investments and can decide your buying and selling prices. So here we are! 

CoinDCX introduces Limit Orders!

As an exchange dedicated to making crypto accessible to all, we are taking another step aiming to fulfill the demands of our community by introducing Limit Orders. To understand the order options better, let us take a quick look at what a limit order is.

What is a Limit Order in Crypto Trading

A limit order is a type of order where you decide a price limit or parameters for buying and selling crypto assets of your choice. For example, if you set a limit to your buy orders, the order will be executed only at the limit price set by you or a price even lower than your set one, but for limits set for sell orders, will be executed starting from the limit price or a price higher than the one set by you. These preconditions set by traders allow them to better control the prices they trade at. 

 

How does Limit Order work

While going through the example of Limit Order, a common question might have popped up: Are there different types of Limit Order? The answer to that is Yes! There are two types of Limit Order accessible for investors, Buy Limit Order and Sell Limit Order. 

Buy Limit Order: In a buy limit order, the trader is basically setting a price at which they are willing to buy the crypto. The order will only be executed if the price of the crypto asset is equal to the set price or lower.

Sell Limit Order: In a sell limit order, the trader is setting a price limit below which the trader is unwilling to sell their crypto holdings.  The order will be triggered only when the price of the crypto is equal to the minimum price or higher. 

The main advantage of using limit orders is that traders get to set the desired price for both buying and selling. This allows them to stay ahead of other traders and enables them to execute a trade even if they cannot keep constant track of the market when their choice of crypto has reached the desired price.

This helps traders seize certain opportunities they might otherwise miss, as all limit orders can stay open for months or in some cases, indefinitely. The limit order will still be executed once the set terms are met.

Limit Order vs Market Order

The two most common order types traders use worldwide are Limit Order and Market Order. Let us understand their pros and cons before diving into either. Shall we?

Traders are typically either buying an asset or selling it while investing in crypto assets. To aim at making their investment profitable, traders generally want to buy when the price is low and sell when the price is high, or they want to sell high first and buy low later. All of the order options are ultimately executed on a crypto exchange platform and the market price of an asset reflects the last traded price always.

Example: If someone wants to buy 1 BTC at this moment, they can open the spot market for BTC on CoinDCX and place an instant order to buy 1 BTC. They only need to clearly state the amount of BTC they are willing to buy for this order and not the amount they want to trade for. The exchange will then fill their order at whatever the market rate is at the moment.

This is a quick way for anyone to get their BTC but they will have no control over the buying price of their asset. The usual reason for traders to want to buy and sell crypto assets at set prices is to make a profit or to enjoy a passive income. This loss of control mostly makes the function of market order unsuitable for them.

This is where limit order comes into play. A limit order allows you to set a specific price for your buy or sell order and asks the exchange to fulfill your order only if the market is meeting your price or doing even better. The con of making use of a limit order is that there is no guarantee that the trade will go through quickly. As the traders will need to wait for the execution of the orders only when the market meets their demand.

Making use of limit orders can be an effective and efficient way for investors to set price caps on their investments, and also gives them some protection against the volatile crypto market. Limit orders also offer other advantages, which include giving traders or investors the ability to place long-term or short-term trades. Both of which will be executed even when they are not continuously watching the market. This can potentially protect investors against losses and aim for lock-in gains.

If the limit order bit was quite a jump to an advanced level of trading for you, head over to DCX Learn and get access to free courses on the basics of crypto! Understand the crypto ecosystem and then dive into our CoinDCX app and CoinDCX Pro app to start building a diversified portfolio, with investments as low as INR 100.

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