What Is A Limit Order In Crypto

What is a Limit Order in Crypto

Cryptocurrencies are still in their nascence, and the inherent volatility in the market demands rapt attention for the traders to profit from the price fluctuations. If the price dips too low, you may lose a considerable portion of your crypto investments.

If you are experienced with cryptocurrency trading, you probably already know that different order types can affect your trades in different ways and can seriously help increase your return on investment (ROI). 

One such way is using limit order in crypto, which can help you have greater command over your cryptocurrency trades. So let’s understand the concept of a limit order in crypto and how to buy a limit order in crypto so that when we trade, we play our cards right.  

What is a Limit Order? 

A limit order allows traders to set a limit price to buy and sell cryptocurrencies in the market. The limit order mechanism works quite straightforwardly –  if the market price of your crypto or other digital asset investment reaches the limit price, your order is executed; if not, the order doesn’t execute itself. Hence, a limit order allows you to buy or sell cryptocurrencies at a limit price or a better price.  

  • Buy Limit Order: The order gets executed at the limit price or a lower price. For example, A trader wants to buy Bitcoin. They set the buy limit order at INR 30 lakhs. The order gets executed as soon as the price touches INR 30 lakhs or dips lower. 
  • Sell Limit Order: The order gets executed at the limit price or a higher price. For example, the same trader wants to sell Ethereum. They set the limit order at INR 2 lakhs. The order gets executed as soon as the price reaches the limit price or climbs higher up. 

Stipulating and setting limit orders allows traders to manage their trade prices better. However, while an investor gets the guarantee that he will buy or sell at the limit price or a better price, the order fulfillment isn’t a guarantee. Unless the cryptocurrency’s price meets the order qualifications, the order isn’t executed. 

Investors usually use limit orders when:

  • They are worried that a cryptocurrency’s price is too volatile.
  •  When they are not much invested in executing a trade at the moment. 
  • When the investors consider the total price paid more significant than the trade execution speed. 
  • Some investors use limit orders solely based on the belief that an asset’s price will reach a more desirable level.

Limit orders are great for patient investors and those who want to hodl by purchasing cryptocurrencies at low prices. But, there is a risk of missing out if the market turns around. If an order is not fulfilled, an investor might miss out on a good trading opportunity.

How Do Limit Orders Work?

A limit order can be used at various times. For example, when a stock is increasing or going down very quickly or when the trader is fearful of the market volatility. A limit order lets traders exercise more control over the execution price, especially if they are apprehensive of using a market order during periods of heightened volatility. Moreover, a limit order can be very useful when a trader cannot watch a stock at all times but has a particular price in mind to buy or sell that cryptocurrency asset. 

Another thing for investors to consider while placing a limit order is the order’s expiration date. Generally, limit orders used in cryptocurrency trades last for 24 hours. Unless you watch the market closely, you might end up buying or selling at a less desirable price because a faulty assessment of the price movement in the market will subsequently lead to the investor undervaluing the limit order. Investors and traders should review their open limit orders from time to time to keep up with the ever-changing market conditions.

Why Use Limit order?

The most beneficial aspect of a limit order is that the trader can execute a trade at a price that is right for them. The trader gets to predetermine the rate at which they want to trade. Additional benefits of a limit order include: 

  • One can specify the amount even when the crypto has not yet hit the mark.
  • It is beneficial when one is trading larger volumes. 
  •  If a trader believes that a cryptocurrency is currently undervalued, they can buy the stock and set a limit order to sell once the price goes up. In contrast, traders who believe a stock is overpriced can place a limit order to buy shares once that price falls.
  • As limit orders are automated, investors don’t have to watch the market 24/7 or worry about missing a buy or sell opportunity while they sleep. 

What is a stop-limit order? 

A stop-limit order is a combination of a limit order and a stop trigger. When a trader sets a stop-limit order, a limit order automatically gets placed once the trigger price is achieved, whether you are online or not. This arrangement allows traders to set the minimum amount of profit they can make and the maximum amount of loss they can bear. Traders can base their stop-limit order on resistance and support levels and the associated volatility of the asset. 

How to buy a Limit Order on Wazirx?

WazirX is one of India’s largest cryptocurrency exchanges, which supports more than three hundred different crypto assets, thus giving users a plethora of options to pick and trade! 

Let’s say you want to buy an XYZ crypto at a lower price than the current trading price. You can place a buy limit order and specify a maximum price you’re willing to pay.

  1. Log in to your Wazirx account.
  2. Deposit funds into your WazirX account. If you already have funds in your WazirX wallet, skip this step. 
  3. Select stop limit from the app’s dropdown menu in the Buy/Sell section.
  4. Enter your desired stop price.
  5. Enter your limit price.
  6. Enter your desired amount at which you want to buy your crypto. You can also use the % buttons to fill the amount automatically.
  7. Click on the Place Order button.

Limit orders can be an ideal way to prevent missing an investment opportunity. You may use it to maximize unrealized gains or limit the potential for loss. That’s especially true if you’re concerned (and any investor would be) about getting hammered by wild swings in the prices of cryptocurrencies. However, if you’re concerned that you’re buying too high or selling too low, you might want to do your own research or consult an expert.

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