Advanced Trading: Limit Orders
A limit order is a buy or sell order executed at a specific price. The advantage of this order is that if the order is executed, it will be done at a fixed price. However, the disadvantage of this type of order is that there is no guarantee that the order will ever be executed or filled.
A buy limit order is an order to purchase an asset at or below a specified price, giving traders control over the price they pay. A buy limit order guarantees that the trader only pays their desired price. The drawback is that if the desired cryptocurrency does not reach the designated price, the order will not be filled, and the trader could miss out on the trading opportunity.
Limit orders can eliminate the possibility of a “bad fill”. A bad fill can happen when the market appears to be trading a specific price but then moves quickly (in either) direction when a market order is placed. Limit orders can also be strategically used to place what are known as “stink bids.” Stink bids are orders that are placed well outside the normal trading range of an asset. A stink bid can be used strategically to take advantage of “flash crashes” when the price of an asset swings wildly and then immediately recovers.
In most circumstances, limit orders are generally appropriate for traders using a passive trading strategy. Limit orders can require the patience of traders who might have to wait for trades to execute, assuming the trades execute at all. Limit orders are often not suitable for traders with a very aggressive trading strategy. When using an aggressive trading strategy, order execution is often more important than short ticks in price, meaning that high-frequency traders might not find limit orders useful.
Example of a Limit Order
- If the bid-ask prices for Bitcoin are $10,000 and $10,500 with 5 Bitcoin available at the asking price, then if a trader places a market order to buy 10 Bitcoin at $10,500, the first 5 Bitcoin will execute at that price. The remaining 5 Bitcoin will not be filled, and the order will remain as an open limit order until filled or canceled.
- Using a limit order would allow the user to ensure that the trade will only execute at a fixed price, providing a trader more control over the price they would be willing to pay for the final 5 Bitcoin. This is different from a market order that would fill the remaining 5 Bitcoin at the next best asking price, which is dictated by the market and not the trader.
How to Place a Limit Order on NDAX
- Login to https://ndax.io/
- Once you log in you will be redirected to your dashboard
- Click TRADE on the left-hand side of the screen
- On the trade page, click BUY (Green button) or SELL (Red Button) on the right side of the screen
- Click the small GREY ARROW in the upper left corner of the screen to pick the CRYPTOCURRENCY/CAD pair
- Click on LIMIT
- ENTER ORDER SIZE (how much you want to purchase)
- ENTER LIMIT PRICE (the specified price the order will execute at)
- Click PLACE BUY/SELL ORDER
Limit Order Video Tutorial (Purchasing Cryptocurrency)
Limit Order Video Tutorial (Selling Cryptocurrency)