In the world of financial markets, executing trades efficiently and at favorable prices is essential. A limit order is a popular and effective trading tool that allows traders to precisely control the price at which they buy or sell an asset.
What is a Limit Order?
A limit order is a type of order placed by a trader to buy or sell an asset at a specified price or better. Unlike a market order, which is executed immediately at the prevailing market price, a limit order gives traders more control over the price at which their trade is executed. When placing a limit order, traders set a specific price level they are willing to buy or sell the asset, and the order will only be executed when the market reaches or surpasses that price.
Understanding Buy and Sell Limit Orders
Buy Limit Order: A buy limit order is used when a trader believes that the asset's price will decrease before it rises again. The trader sets a price below the current market price, indicating the maximum price they are willing to pay. When the market reaches or goes below the specified price, the buy limit order is triggered, and the trade is executed.
Sell Limit Order: Conversely, a sell limit order is utilized when a trader expects the asset's price to increase before declining. The trader sets a price above the current market price, indicating the minimum price they are willing to accept. Once the market reaches or goes above the specified price, the sell limit order is triggered, and the trade is executed.
Benefits of Limit Orders
Price Control: Limit orders allow traders to have precise control over the price at which they enter or exit a position. This control is particularly valuable in volatile markets, where prices can fluctuate rapidly.
Strategy Implementation: Limit orders enable traders to execute specific trading strategies, such as, for example, buying at support levels or selling at resistance levels, with precision and discipline.
Avoiding Slippage: Slippage occurs when the execution price of a market order differs from the expected price due to sudden price movements. Limit orders help traders avoid slippage by ensuring that their trades are executed at their desired price or better.
Patience in Trading: Limit orders encourage patience in trading by allowing traders to wait for the desired price levels to be reached before entering or exiting a trade.
How do I place a limit order?
To place a limit order:
- Select the order type Limit under the Buy or Sell tab. In this example, we are placing a buy order on the BTC-GBP trading pair
- Enter the amount of BTC you would like to purchase. You can use the percentages listed below to help fill the amount. For example, if you select 25%, then this amount will be deduced from your fiat balance to fill in the BTC amount.
- Once you have entered the amount you wish to purchase, enter the limit price. This is the price at which you wish to purchase your BTC. Clicking the empty space within this field will provide you the current asking price (the best available ask on the order book).
- Once your limit price is entered, select the type of order you would like to place. The order defaults to Good Til Cancelled. This is an order to buy or sell at a specified price which remains in effect until executed or cancelled by the investor.
On Blockchain Exchange, your GTC orders remain in effect for 95 days and expire at 12:00 AM (GMT+1/Midnight in London, UK).
- Once the amount to trade, limit price and order type has been entered, you will be provided an estimate of the price. Click the Preview Order button, double check the details and click Submit Order. Your limit order will be placed once you click this.
Note: In volatile markets, although your limit order receives protection from getting filled at an undesirable price, due to the priority of other orders, your order may not be executed even if the market is trading at your limit or better after your order is entered. Similarly, the price may move away from your limit after your order is entered, in which case your order will not be executed.