What is a Limit Order in Crypto: Limit Order vs Market Order
A market order refers to a request made by an investor to buy or sell a security at the best possible price. Market orders are usually executed by a broker or brokerage service on behalf of their clients who wish to take advantage of the best prices available in the current market.
How do market orders work?
When you ask your broker to buy or sell a stock for you, whether it’s by clicking the trade button on your broker’s website, or by calling your broker on the phone, you’ll usually get something different from the way you submit. — Will be able to take from the different choices of your business. If you’re using an online brokerage, those different options may appear under the “Order Type” header when you go to submit your trade. Depending on your brokerage, you may be able to execute your trades as a market order, limit order, stop order, stop-limit order or even a trailing stop order.
What is a limit order?
A limit order is a type of order that allows an investor to set a cap on the maximum per share amount they are willing to pay for a security or the minimum amount they will accept on sale. Think of it as a kind of fence around the price, a buy limit order or a sell limit order giving individuals more control over their investments. On the buy-side, a limit order can only be implemented at or below a price set by the investor. On the sell side, transactions can only take place at a price that is equal to or greater than the amount set by the investor.
How Does Limit Order Work?
Looking at the limit order example, a common question might arise: Are there different types of limit orders? The answer is yes! There are two types of limit orders available to investors, buy limit orders and sell limit orders.
Buy Limit Order: In a buy limit order, the trader is basically setting a mark they are ready to reach to buy the stock. The order will only be executed if the price of the crypto is equal to or less than the specified price.
Sell Limit Order: In a Sell Limit Order, the trader is announcing the minimum price up to which they want to access the crypto. The order will only be triggered when the crypto is equal to or greater than the minimum price.
Market Order: Trade Now
The biggest advantage of a market order is that your broker can execute it quickly, as you are asking the broker to pick the best price available at that time. If you are buying a stock, a market order will be executed at whatever price the seller is asking for. If you are selling, a market order will be executed at whatever the buyer is bidding.
Go with Market Order when:
- You want quick execution at any cost
- You are trading a large molten stock with a narrow bid-ask spread
- You are trading only a few stocks
Limit order: trade when the price is right
The biggest advantage of limit orders is that you get to name your price, and if the stock reaches that price, the order will probably be filled. Sometimes the broker will further fill your order at a better price. Typically, you can set limit orders to execute for up to three months after you enter them, which means you don’t necessarily need to watch to get your price.
Go with a limit order when:
- You want to specify your price, sometimes disparate from the location of the stock
- You want to trade stocks that are not liquid or have a large bid-ask spread
- You are trading a many shares
Market Order vs. Limit Order
There are two key execution choices available to an investor who is placing an order to buy or sell a stock. When orders are placed in the market, they are called market orders. When orders are placed on the limit, they are called limit orders because they are subject to constraints set by the investor.
Limit orders allow investors and their brokers greater control. Investors are able to set a maximum limit for the allowable sale price amount and a minimum limit for the allowable purchase price amount. Unlike market orders, limit orders are suitable for securities with medium or small market capitalization, low trading volume, and wide bid-ask spreads.
Final Thoughts
The inherent risk to limit orders is that should the actual market price never fall within limit order guidelines, the investor’s order may fail to execute. Another possibility is that a target price may eventually be reached, but the stock does not have enough liquidity when it comes to turn orders. A limit order may sometimes get a partial fill or not at all due to its price restriction. Limit orders are more complex to execute than market orders and the latter can lead to higher brokerage fees. That said, for low-volume stocks that are not listed on major exchanges, it can be difficult to ascertain the true value, making limit orders an attractive option.
