A limit order is a type of trading order in which you place a buy or sell order for an asset at a specific limit price. The limit price is a value that is under your absolute control.
The main peculiarity of a limit order is that they are placed in the order book of the exchange. There they are waiting for the specified price to be reached and then successfully executed. This operation allows you to save commissions as a market maker within the exchange.
When to use a limit order?
The ideal use of limit orders is when you meet these conditions:
- If you want to buy, you want to do it at a low price. This in order to have a better entry to the market. In that case, a limit order is created with a price below the market price. Thus, when the price is reached, the purchase is made automatically.
- If you want to sell, you want to sell at a high price. To do so, you will create a limit order with a price above the market price.
In both cases, using a limit order requires analysis of the reality of the markets. Here patience and market analysis are key. Because, the execution of a good limit order offers unique advantages in a good trading strategy.
Limit Order vs Market Order. Which is the best option?
The limit order and market order, are two types of orders that have very similar uses, but very different results.
Limit orders, as we have already mentioned, are conditional orders. That is, orders that are only executed when the condition we give is met. In this case, the condition is the buy or sell limit price that we choose for that order. This means that limit orders are waiting orders, and their fulfillment can take from a few minutes, hours or days. All this depends on the market dynamics and the given condition.
On the other hand, market orders are fast orders, as they are executed using the market price of the asset. This market price is related to the supply and demand of that asset. Although both orders serve to buy and sell, the way they do this is completely different.
Points to keep in mind for these orders
In such a case, you should keep in mind the following about this type of orders:
- A limit order waits for a “good price chosen under your criteria” to be realized. This is positive, because you are in control at all times. However, a market order is placed at someone else’s discretion. This may not be so bad, unless the market liquidity is very low. In this case, the price slippage of the asset can be very high which would generate a huge loss.
- A limit order may not be executed completely, if the asset price fluctuates so rapidly that it is impossible to fill the order at the right time. This creates a situation where only a portion of your assets are bought or sold. But, a portion is frozen because the price condition is not met. In this case, the price may go up a lot, making buying the asset no longer profitable, or it may have gone so low that selling generates unexpected losses. This situation does not happen with a market order, as it does not depend on a condition, but is realized instantly and entirely at the market price.
In any case, choose wisely the type of order you plan to use with your trades, use its advantages. And always, be alert to changes in the market.
How to use a limit order in Atani?
To use a limit order in Atani, the first thing you need to do is to have connected one of the exchanges supported by the application. If you have already connected the exchange to Atani, then open the application and go to the trading form.
Selecting a pair for trading
The second step is to choose the cryptocurrency pair you want to trade, in this case, we will use the MATIC/USD pair in Coinbase Pro. To choose the pair, you must select the MATIC currency using the panel located on the left side of the application.
Once you have chosen the pair you will be able to see the MATIC/USD pair chart on your screen. At this point, you will see that the buy and sell module is enabled to trade this pair. At this point, within this module you should choose the “Limit” tab, which enables the execution of limit order within Atani.
There you will see the following:
- The “Limit” box, where you can specify the desired price for buying or selling the cryptocurrency (MATIC, in this example).
- The “Total” box, which indicates the total amount of money we will use to buy with our balance in the exchange. That is, here we specify how much we are going to buy in Ethereum.
Both data must be completed, and after that you must click on “Buy” to start executing the limit order.
In case you wish to place a “Sell” order, the process to follow is the same, just make sure you choose the “Sell” option and complete the data.
When using a limit order remember the following:
First, you use a low limit price to buy, as you are looking to buy more cryptocurrencies with less money, and thus have a better position in case the price goes up.
Second, you use a high limit price when you sell, to maximize your profit.
Never use it in the opposite way, or you will have losses in your operations.
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