What Is a Limit Order?
A limit order is a trader’s instruction to a broker or exchange to buy or sell a cryptocurrency, stock, or commodity only at a specified price or better. The execution price for a buy limit order won’t exceed the set price, while a sell limit order won’t execute below the predetermined price.
Limit orders prioritize price precision over speed. Unlike market orders, they aren’t executed immediately but instead wait for the market to reach the target price. However, if the price isn’t achieved within the order’s timeframe, the trade expires unfilled.
How Do Limit Orders Work?
- Price Control: Traders set exact buy/sell thresholds.
Expiry Options: Orders can be set as:
- Day-only (DAY): Expires after one trading session.
- Good-Till-Canceled (GTC): Remains active indefinitely (often up to 90 days).
- All-Or-None (AON): Fills only if the entire order executes at once.
Advanced Features:
- Post Only: Ensures the order stays on the book (avoids immediate execution).
- Iceberg Orders: Large orders split into smaller, discreet limit orders to minimize market impact.
Pros and Cons of Limit Orders
Advantages
✅ Price Protection: Guards against volatile price swings.
✅ Automation: Executes future trades without manual intervention.
✅ Flexibility: Customizable conditions (e.g., GTC, AON).
Disadvantages
❌ No Execution Guarantee: Fills only if the target price is met.
❌ Partial Fills: Orders may execute incompletely.
❌ Potential Fees: Multiple partial fills can incur extra fees.
Limit Order vs. Market Order
| Feature | Limit Order | Market Order |
|------------------|--------------------------------------|--------------------------------------|
| Execution | Only at set price | Immediate at current price |
| Priority | Price over speed | Speed over price |
| Best For | Volatile markets, large trades | Small, liquid trades |
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Limit Order vs. Stop Order
Stop Order: Triggers a market order once a price threshold is breached. Ideal for:
- Risk management (stop-loss).
- Locking profits (take-profit).
- Limit Order: Strictly executes at/better than the set price.
Key Difference: Stop orders guarantee execution (but not price), while limit orders guarantee price (but not execution).
Example of a Limit Order
Scenario: Token X trades at $22. A trader sets a buy limit order at $20 (GTC for 30 days).
- If X hits $20: Order fills.
- If X never reaches $20: Order expires unfilled.
FAQs
1. What’s a buy limit order?
An order to purchase an asset at or below a set price. Common in volatile markets.
2. What’s a sell limit order?
An order to sell an asset at or above a specified price.
3. Are limit orders safer than market orders?
- Market Orders: Safer for guaranteed execution.
- Limit Orders: Safer for price control.
4. How long do limit orders last?
From 1 day (DAY) to months (GTC), depending on the exchange.