Every trader wants to maximize their profits while limiting their risk. But what's the best way to do that? If you have a solid trading strategy, it can help reduce your risks while still giving you an opportunity for growth, so that your trades end up profitable.
Limit orders often play important roles when executing trading strategies. It gives more control over the execution price of a trade, especially for traders trading a ranging market or buying/ selling digital assets with high volatility. They can be guaranteed that transactions will happen at or above the limit order price.
In contrast, Market orders may force traders accept price that is much worse than actual asset value when there is insufficient liquidity. In this post, we expanded on limit order and how you can use it to your advantage.
What Are Market Orders?
Before we dive into a limit order, it is important to understand the phrase "Market Order." Market Order is a type of order that allows traders to either sell or buy an asset immediately at the current price.
They guarantee a trader will enter their trade regardless of the price. However, the market order doesn’t guarantee a specific price since it gets executed against the most recent orders which price might change every millisecond.
When you place a market order, the exchange will fulfill your command immediately.
What Are Limit Orders?
A limit order is a type of trading order that buy or sell a digital asset at a specified price. This type of order allows traders to stipulate an exact price or place their order with more general instruction.
For example, if someone wants to buy BTC/USD using the limit order, they can set both the quantity of BTC they want to purchase and the price they’re willing to pay for it.
A limit order is an instruction to buy or sell a currency at a specified price. When you place a limit order, you ask the exchange to execute your trade at a specific price. On the flip side, a stop order is different because it goes into effect when the digital asset or currency reaches a certain point or value.
Both types of orders can be used to buy and sell currencies on exchanges like Redot. For example, suppose you predicted a cryptocurrency will reach a certain price level, and you want to either buy or sell from that level. In that case, you can place a limit order with a specific market point as your target price.
Understanding How Limit Order Works
One alternative for traders, particularly if you're cost-conscious or want more control over entry and exit, is to put specific types of orders with capped prices to ensure that they don't go higher than intended. Limit orders allow traders to keep costs low and maximize profits.
Limit orders are set up, so they execute when specific prices are reached. If Bitcoin trades below $60k and you want to sell it at this price, your limit order won't be executed until it hits that threshold.
With a limit order, the trader is guaranteed that they will not pay more than their set price. This implies that if a trader sets out buy limits at a specific price point and is not filled, several things might happen based on the type of limit order. Limit orders can be of various forms, but standard ones stay in the order book until filled. It is also possible to set time-limited limit orders; if the transaction is not filled within the time limit, the order is regarded void.
This type of order can also help them set prices ahead, so they don't have any surprises if watching the market closely isn't possible due to time constraints.
Examples of the Limit Order
A lot has changed in trading over recent decades. A lot of retail investors now build their own trading strategies to maximize alpha, while professionals keep working with fundamentals to produce in-depth analysis justifying their market views.
Limit orders allow traders to place a wide variety of trades at particular points in time, which also helps with anticipation and alignment. For example, the price of BTC/USD is currently $60,000, and you place a limit buy at $58,000; the order executes at $58,000 once there is a matching sell order at this price or below.
If you then intend to sell when Bitcoin hits $80,000, the limit price would be set at $80,000 on the sell-side and matched with someone else’s buy order, provided there is any.
If the set price is below the current buy price or above the recent sell price, chances are it results in an immediate fill since there is a better price available than the specified limit price. As stated earlier, timing is an essential factor in using the limit order.
How to Use the Limit Order
If you want to sell a cryptocurrency at a higher price than what is currently being bid, go onto your Redot account and choose the marketyou want to trade. Then select the limit order tab, set the quantity, price, and submit the order.
Limit Order Rules
Suppose you are looking to buy or sell an asset but would prefer to make your entry at a different price rather than the current market price (i.e., market orders). In that case, limit orders can be useful because they allow traders to get better prices than what's available.
It might be a good idea to have some knowledge on major support/resistance levels if you plan to use the limit order for day trading strategies, because the limit order often works out well when placed strategically around the support/resistance levels.
Limit Orders vs. Market Orders
Traders and cryptocurrency investors have two main options when trading: the Market order or the Limit Order. Market orders execute as quickly as the current price and can be affected by demand and supply changes.
Limit Orders caps the amount you’re willing to pay for a digital asset. Many people wonder what's better between 'Market' & 'Limit.' The answer depends entirely upon where someone is trading with their cryptocurrency portfolio!
Limit orders are safer than market orders because they can be placed with more confidence. However, the probability of missing an opportunity will increase significantly in a Limit Order compared to a Direct Market Order, where trade occurs at once.
Limit Orders vs. Stop Orders
Orders allow you to be more specific about how you expect your exchange to fill your trades. For example, when a trader places a stop or limits order, it might mean that they don't want the current price (i.e., the price at which a cryptocurrency is trading at a set time). Instead, they prefer their orders executed when the price of an asset matches the price they specify.
There are also situations when the trader sets a limit order with the current price. Assume you wish to buy $1000 in BTC at a price of $60,000. If the current market price is $60K, but only $500 worth of BTC is being sold at that price, you set a limit of $1,000, fill 500, and wait for the price to return to $60K to fill the remaining 500.
Typically, there are two major differences between stop and limit orders. First, limit orders use price to assign the least acceptable amount for a specific transaction to occur. Conversely, stop orders use a stipulated price to initiate an actual market order once the price has been traded. Second, a limit order can be seen in the order book, while a stop order can't be seen but triggered.
For instance, if you want to sell 1 ETH at $4,500, the limit order used can be seen and filled once buyers meet the said price. A stop order is an order that is not seen by the market and triggers only once the stop price has been exceeded or met. Assume the current price of Ethereum is $4,500, and you want protection in case the price drops below $4,200. A stop order of $4200 can be placed. Your order is executed after the market falls below or reaches the predetermined price of $4200. This stop order will then get executed as a market order for the latest market price.
Also, stop orders serve as a great way to ensure you get in before the price spikes. They can be set as an entry order, so once your stop has been met or exceeded, it will turn into a traditional market order and execute with whatever is on offer at the time of the trade.
There are tons of factors that affect trade executions; aside from the types of orders, a trader can use conditions such as volume, price constraints, or time to predict market behavior and the overall outcome.
We recommend you become familiar with all the steps you need to control order; this will serve as a confluence to your trading strategy and help you make the most of your trade.
Get Started with Limit Orders
What do you think about limit orders? Do you know how to maximize profits while minimizing risk with various types of orders? A limit order can help put boundaries in place for buying or selling at set prices. The time restraints with these orders must be considered, but they have the potential to be a valuable tool if used correctly.
Today, spend some time evaluating your trading strategy and implementing appropriate usage of limit orders – you can get a head start by buying Bitcoin on Redot!
*This communication is intended as strictly informational, and nothing herein constitutes an offer or a recommendation to buy, sell, or retain any specific product, security or investment, or to utilise or refrain from utilising any particular service. The use of the products and services referred to herein may be subject to certain limitations in specific jurisdictions. This communication does not constitute and shall under no circumstances be deemed to constitute investment advice. This communication is not intended to constitute a public offering of securities within the meaning of any applicable legislation.