Limit Order

A limit order is a trading instruction that lets users buy or sell an asset only at a specific price or better.

What Does a Limit Order Mean in Crypto?

A limit order in cryptocurrency is a command given to a crypto exchange, which directs the platform to execute a buy or sell trade only when the asset reaches a predetermined price. Unlike market orders that trigger trades at the current market price, limit orders allow traders to wait until the price conditions they set are met. It ensures better control over trade execution.

In the volatile crypto market, businesses that accept digital assets through cryptocurrency payment gateways often rely on tools like limit orders (either directly or through integrated exchange platforms) to manage price exposure. By setting fixed buy or sell prices, they can better align conversions with financial targets and reduce the risk of unfavorable exchange rates.

How Do Limit Orders Work in Crypto?

To understand the functionality of limit orders in crypto, we’ve described how these orders work in practice.

• Placing a Buy Limit Order. A crypto owner wants to purchase Bitcoin (BTC) but prefers not to buy it unless its price drops to a certain threshold. For example, a user might want to buy BTC when its price hits $80,000. In this case, the user places a buy limit order with a price of $80,000. The trade will only be executed if the price of Bitcoin meets or falls below that amount.
• Placing a Sell Limit Order. On the flip side, if an individual owns Bitcoin and wants to sell when the price reaches $85,000, this user would place a sell limit order. The order will only be filled once the market price meets or exceeds $85,000. This method is particularly effective for cryptocurrency owners who want to lock in profits or exit the market at a favorable price.

Types of Limit Orders in Cryptocurrency

There are several types of limit orders, each designed to meet different trading strategies. The most common types are:

Buy Limit Orders

A buy limit order is placed at a price below the current market price, with the expectation that the asset’s price will drop to that level. If the market price falls to or below the specified limit price, the order becomes eligible for execution. However, execution is not guaranteed – it depends on whether there’s enough supply (sellers) at that price.

Example:

A trader believes Bitcoin is overpriced at $55,000 but is willing to buy if the price drops to $50,000. The trader places a buy limit order at $50,000. It means the order will only be filled if the market price reaches $50,000 or lower. It gives the trader control to purchase the asset at a comfortable for the trader price.

Sell Limit Orders

A sell limit order is the opposite of a buy limit order. It is placed at a price above the current market value, with the goal of selling the asset at a higher price. The order becomes eligible for execution when the market price reaches or exceeds the specified limit price. However, the trade will only be completed if there is enough buying interest at that price level.

Example:

A trader owns Bitcoin and wants to sell if the price rises to $80,000. The trader places a sell limit order at $80,000. The order will only be filled if the market price reaches or exceeds that level, allowing the trader to sell at their preferred or better price.

Buy Stop Orders

A buy stop order is placed above the current market price and is triggered when the asset’s price rises to the stop level. Once triggered, it becomes a market order and is executed at the best available price. This order type is commonly used by traders expecting a bullish breakout and wanting to buy as momentum builds.

Example:

Bitcoin is trading at approximately $80,000 and a trader believes it will rise to $90,000. The user might set a buy stop order at $90,000. The order will only be activated when the market reaches that price.

Sell Stop Orders

A sell stop order is placed below the current market price. Once the asset’s price hits the stop level, the order becomes a market order. It means it will execute at the best available price, not necessarily the stop price.

Example:

A Bitcoin holder may set a sell stop order at $75,000, anticipating a price decline. If the market price drops to $75,000 or lower, the stop order is triggered and becomes a market order, selling Bitcoin at the next available price. It could be slightly higher or lower than $75,000, depending on market conditions.