Limit Order In Cryptocurrency Trading: What Is It?

Whether it’s the stock market or cryptocurrency, good strategies are a basic requirement for trading and investing. While many investors love to keep track and come up with the best plans, not all think the same. This is where investment tools come into play.

Investment tools are primarily automated and help investors who aren’t too keen on strategizing their investments. Another group of investors that benefit from these tools is beginners who have little to no experience in market price shifts.

The crypto industry entails many tools that ease investments. Today, we’ll go over one such tool; Limit order and go over its utility.

Introduction to Limit Order

Originating from the stock market, a limit order works exactly the way it sounds. Through a limit order, an investor can either buy/sell a stock at a defined “limit”. The limit at which you want to buy/sell a stock is completely on your hands. This tool guarantees that you pay a specific price or lower.

However, the one thing that investors should note is that a limit order relies solely on the price you set. In other words, a limit order won’t trigger until a stock hits the defined price. This can be troublesome for investors who wish to change their strategy midway. Limit order in crypto trading is also available at crypto exchanges themselves such as Giottus.

Types of limit order in crypto

When it comes to limit order in crypto, there are two main aspects of it; either you place a buy limit order or a sell limit order. We’ll go over both of these in brief to gain a better understanding of how they function.

Buy limit order

This type of limit order is made when you wish to buy cryptocurrency at a specific price. For example, say Ethereum’s price is ₹3,58,00 but you want to buy this coin when it’s ₹3,50,00. You can simply set up a buy limit order at the price you want Ethereum for. This way you can even buy other cryptos at a fairly lower price. You also have the freedom to widen or narrow down on your limit price.

Sell limit order

Sell limit is an order where you sell a coin at a specific price. Thus, once the predetermined condition or the price limit is met, the asset is sold off automatically there and then. With a sell limit order, investors should realize that a coin might do even better than the set price which could minimize the profit they could’ve made since assets are sold instantly when they hit the desired price. A sell limit order is more optimal for making smaller and less risky profits.

How to use limit orders appropriately in crypto

A core concept to know regarding limit order is to understand how to utilize it appropriately.

Cryptocurrency’s volatile markets have favorable and unfavorable consequences that make it imperative to use tools like Limit Orders. Let’s go over a few ways that can help you make use of limit orders correctly.

Analyze the market:

A lot of cryptocurrencies exist for different purposes. While Ether is the currency for Ethereum which helps create smart contracts for companies, Ripple exists to serve as a virtual payment network. Both of these coin’s markets work in different ways. Try searching for areas where the market historically shifts in price. Once you’ve got hold of these areas, try placing your limit orders around them to maximize your profits.

Consider Volatility:

The crypto market has earned a reputation for being volatile. However, this doesn’t mean there are price shifts worth millions every day. To deal with this, check whether the volatility of a coin is high all the time, at certain events, or stable. If the volatility is high, you can set a wider limit while in stable markets, keeping a low range in prices is bound to be better.

Conclusion

Altogether limit orders can be quite useful especially when you know how to appropriately choose a buy or sell price. Limit orders are significantly placed more in the cryptocurrency market since they are quite volatile. Hence, the success rate of limit orders is high but it all depends on one’s ability to choose and the type of coin invested in. However, if you understand the procedure of using limit orders optimally then it’s worth it. It is highly advised to do your research before applying these methods or strategies in your cryptocurrency trading.