TL;DR
When you create a limit order, you add it to the order book at a specific price. The limit price is determined by the user. The limit order will only be executed/filled if the market price reaches the limit price or a better value. Therefore, you can use limit orders to buy at a lower price or sell at a higher price than the current market value.
Unlike market orders, where trades are executed instantly at the current market price, limit orders are entered into the order book and are not executed immediately. In most cases, limit orders result in lower fees because you trade as a maker and not a taker.
Introduction
Having trouble deciding what type of order to use when buying Bitcoin (BTC) or Ether (ETH)? Order types can affect your trades in different ways, so it is essential to understand the distinctions between them. If you prefer to have more control over your trades, consider using limit orders to limit the buy or sell price of a currency.
What is limit order?
A limit order has a specific buy or sell price. To create a limit order, you must set a maximum or minimum price at which you want to buy or sell an asset. Your order will be added to the order book and will only be executed if the market price reaches the limit price (or better).
Unlike market orders, where trades are executed instantly at the current price, a limit order offers more control over the execution price. Limit orders are automated, so you don't have to monitor the market 24 hours a day or worry about missing a buying or selling opportunity while you sleep.
However, there is no guarantee that your limit order will be executed. If the market price never reaches the limit price, your trade will remain pending (unfilled) in the order book. Typically, a limit order holds for up to a few months, depending on the cryptocurrency exchange.
How does a limit order work?
When a limit order is created, it is added to the order book immediately. However, it will not be filled unless the coin price reaches the specific threshold price (or better). For example, you want to sell 10 BNB at $600 and the current price is $500. You can create a limit order to sell BNB at $600. When the BNB price reaches the target price, your order will be executed, in accordance with market liquidity. If there are other BNB sell orders placed before yours, the system will execute those orders first. Your limit order will be filled later with the remaining available liquidity.
Another factor to consider when creating a limit order is its expiration date. In general, limit orders can last up to 90 days. Unless you constantly watch the market, you may end up buying or selling at a different price than you want due to market volatility. For example, the current market price of BNB is $500 and you have created a limit order to sell 10 BNB at $600. After a week, the price of BNB rose to $700. As the market price exceeded the set limit price, your order was executed at $600. In this case, your profits were limited by the target price you set a week ago. Therefore, it is recommended to regularly review your open limit orders, following changing market conditions.
Ordens stop-loss vs. ordens limite
There are different types of orders used for cryptocurrency trading, such as limit, stop-loss and stop-limit orders.
A stop-loss order is a market order that is triggered when the market reaches your stop price. It is an order to buy or sell a currency at the market price, as soon as the price of the currency reaches the defined stop price.
When triggered, a stop-loss order turns into a market order and is executed at the current market price. If the stop price is not reached, the order will not be executed. Sell stop orders can be used to minimize potential losses if the market moves against your position. They can also be used as a “take-profit” order to exit a position and protect unrealized profits. Buy stop orders can also be used to enter the market at a lower price.
The difference between a limit order and a stop-loss order is that the former will be executed at the set limit price (or better), while the latter will be executed at the current market price (like a market order). Note, however, that if the market price changes too quickly, your order may be executed at a price that differs significantly from the trigger price.
Ordens stop-limit vs. ordens limite
A stop-limit order combines the features of a stop order and a limit order. Once the stop price is reached, it will automatically trigger a limit order. If the market price reaches the limit price or better, the order will be executed/filled. If you don't have time to monitor your portfolio constantly, you can consider using stop-limit orders to limit possible losses when making trades.
When creating a stop-limit order, you must set two prices: the stop price and the limit price. The difference between stop-limit orders and limit orders is that the former will only create a limit order if the stop price is reached, while the latter will be added instantly to the order book.
Let's assume BNB is $600 and you create a sell stop-limit order with a stop price of $590. If BNB drops to $590, the system will automatically set up a sell limit order, with the specified limit price (e.g. $585). However, there is no guarantee that your orders will be activated. If the market moves too fast, there is a chance that your order will not be filled.
Ordens stop-limit vs. ordens stop-loss
Stop-limit and stop-loss orders are triggered based on the stop price. However, once triggered, the stop-limit order will create a limit order, while the stop-loss order will create a market order.
When to use a limit order?
We recommend using a limit order when the user:
You want to buy or sell at a specific price, different from the market price;
Don't be in a rush to buy or sell immediately;
Do you want to maximize unrealized profits or minimize possible losses;
You want to split your orders into smaller limit orders and get a dollar-cost-averaging (DCA) effect.
Remember, even if the limit price is reached, your order will not always be executed/filled. It all depends on market conditions and general liquidity. In some cases, your limit order may only be partially filled.
How to create a limit order on Binance?
Let's say you want to buy BNB at a lower price than it is currently trading. You can create a buy limit order and specify the maximum price you are willing to pay.
1. Log in to your Binance account and click [Trade] in the top bar. Select [Classic] or [Advanced] trading mode. In this example, we will use [Classic].
2. In the search bar on the right, enter “BNB”. Choose the desired trading pair. In this example, we will use [BNB/BUSD].
3. Scroll down to the [Spot] box and select [Limit]. Then set the price and quantity you want to buy. You can also set the purchase amount by clicking on the percentage buttons, creating a sell order with a limit of 25%, 50%, 75% or 100% of your available balance. Click [Buy BNB] to confirm.
4. A new confirmation window (pop-up) will appear on the right and your limit order will be added to the order book.
To manage your orders, scroll down to [Open Orders]. The limit order will only be executed if the market price reaches your limit price. If the market does not reach the set price, the limit order will remain open.
Final considerations
A limit order is a great trading tool to buy or sell a currency at a certain price. You can use it to maximize unrealized gains or minimize potential losses. However, before choosing an order type, it is important to understand the different options and evaluate how each will play into your overall portfolio and trading strategy. To learn more about the different types of orders, check out our article Understanding Different Types of Orders.
