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The world of finance is changing by leaps and bounds. The introduction of newer asset classes, such as crypto, is altering how we trade and invest, in addition to the classic investment instruments. Since crypto is still in a nascent stage, the market’s inherent volatility necessitates close monitoring by traders in order to capitalize on price swings.
Utilizing limit orders in crypto helps one to have more control over trading activities. In order to play our cards correctly when trading, we should understand the different types of orders available. But first, let’s talk about limit orders.
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What is a Limit Order?
Using a limit order, traders can specify a maximum price at which they would want to buy or sell a coin. The limit order method works using the following if-else algorithm:
- If the market price of your investment in a crypto coin or other digital asset reaches the limit price, your order is carried out;
- If not, the order is canceled.
The key benefit of using limit orders is that both buyers and sellers can select the desired price. When their preferred crypto reaches the target price, they can then make a trade even if they are unable to continuously monitor the market, staying one step ahead of other traders. Consequently, a limit order enables one to purchase or sell crypto at a specific or higher price.
Traders use limit order in various situations. Some of them are:
- The coin is a low-volume coin and isn’t frequently traded on the market.
- The trader is concerned that the price of a crypto coin is fluctuating a lot.
- The trader doesn’t indulge in intra-day trading, hence, doesn’t have the time to keep a watch on the market.
- Some investors only employ limit orders when they think that the price of an asset will rise to the desired level.
- The trader is trading a huge volume of coins at once.
Drawbacks of Limit order
Limit order makes it convenient for traders to invest in crypto, but they have a few setbacks too. Here are some disadvantages of using Limit orders:
- The order will not be filled if a willing buyer or seller does not meet the limit price within the allotted time frame.
- Additionally, time is crucial when placing limit orders. Each order placed in an exchange’s order book has a time stamp. In case of the same price, the order placed first takes precedence over the orders accepted later.
How does it work?
There are two limit order types: sell limit orders and buy limit orders.
- Sell Limit Order: When a trader places a sell limit order, they specify the lowest price they want the crypto coin to reach. The order will be activated only when the crypto price is equal to or more than the minimum price.
- Buy Limit Order: Here, a trader establishes a limit they are willing to meet to purchase a stock. The order will be carried out only when the price of the crypto is lower than the predetermined price.
Investors should also consider the order’s expiration date while placing a limit order. Suppose a trader doesn’t have the time to keep a close eye on the market. In that case, they can find themselves buying or selling at a less acceptable price since a poor evaluation of market price movement will ultimately force the investor to underestimate the limit order. In order to stay updated with the constantly shifting market conditions, traders and investors should periodically examine their open limit orders.
Conclusion
Limit orders are a great trading instrument when a trader wants to purchase or sell a coin at a higher price. An investor can use it to maximize unrealized gains or reduce loss risk. It is a great option for investors who are patient and are looking to HODL. However, limit order doesn’t come without risk. You might lose out on a profitable opportunity if an order is not filled. Hence, traders should be aware of the pros and cons of all kinds of orders and strategize their moves carefully.
Frequently Asked Questions
Is Mining Cryptocurrency Legal?
Cryptocurrency mining can be time-consuming, expensive, and sporadically profitable. Mining has an appeal for many cryptocurrency enthusiasts as miners are paid directly with crypto tokens for their efforts. The legality of cryptocurrency mining is dependent on where you live. In India, there is no restriction on crypto mining.
What Is Crypto?
Crypto or a cryptocurrency is a digital currency protected by cryptography, making counterfeiting and double-spending nearly impossible. Blockchain technology is used to produce cryptocurrencies (a distributed ledger enforced by a distributed network of computers). Cryptocurrencies are distinct in that a government does not issue them. The word "cryptocurrency" refers to the encryption methods employed to keep digital currencies and the network secure.
Can I Invest In Cryptocurrency?
Yes, with exchanges like WazirX, you may invest in cryptocurrency in India. To begin, go to the WazirX website and register. After that, you will receive a verification email. The link received by verification mail will only be available for a few seconds, so make sure you click it as quickly as possible. This will successfully verify your email address. The following step is to set up security, so choose the best solution for you. After you've set up the security, you'll be given the option of continuing with or without completing the KYC process.
Which Cryptocurrency Is Best To Invest In 2021?
Many altcoins are flourishing to invest in. Some cryptocurrencies with great potential are Ether, Ripple, Tron, and more. Investors are trying to diversify their portfolios and are flocking to the leading cryptocurrencies. Many growing businesses are already accepting cryptocurrency as acceptable payment methods.
How To Invest In Cryptocurrency In India?
There are two ways of investing in cryptocurrency, mining and via exchanges. Cryptocurrency mining is the process of verifying and adding transactions between users to the blockchain public ledger. Purchasing cryptocurrency in India is a straightforward procedure where investors simply participate by registering with a crypto exchange such as WazirX. After registering for an account, citizens can trade multiple cryptocurrencies, store cryptocurrency in wallets, and more.
How Many Cryptocurrencies Are There?
There are over 5000 other digital currencies available on the internet in addition to Bitcoins. The only problem is that they haven't gotten the users' attention. Besides Bitcoins, a few other digital currencies have gained popularity among users. It's been more than ten years since Bitcoins were first released, and now they've achieved new heights thanks to their phenomenal success.
Is Cryptocurrency Legal In India?
In India, cryptocurrencies are legal; anyone can purchase, sell, and trade cryptocurrencies. They are currently unregulated; India does not have a regulatory framework in place to regulate its functioning. According to the Ministry of Corporate Affairs (MCA), companies must now declare their crypto trading/investments during the financial year, according to the Ministry of Corporate Affairs (MCA). Cryptocurrency transactions have been taxable in India when people receiving such gains are Indian tax residents or where the crypto is considered to be domiciled in India
What Is Cryptocurrency?
A cryptocurrency is a digital currency secured by encryption, due to which chances of activities such as counterfeiting and double-spending taking place get close to impossible. Cryptocurrencies get created on blockchain technology ( a distributed ledger enforced by a distributed network of computers). Cryptocurrencies are unique in that they do not get issued by any central authority. The term "cryptocurrency" comes from the encryption techniques used to keep digital currencies and the network safe.
Are Cryptocurrencies A Good Investment?
Cryptocurrency has the potential to make you extremely wealthy, and the potential to cause you to lose your money. Crypto assets, like any other investment, come with many risks and potential rewards. Fundamentally, cryptocurrency is an excellent investment, particularly if you want to gain direct exposure to the demand for digital currency.
Is Bitcoin And Cryptocurrency The Same Thing?
Bitcoin is a cryptocurrency that was designed to facilitate cross-border transactions, eliminate government control over transactions, and streamline the entire process without third-party intermediaries. The absence of intermediaries has resulted in a significant reduction in transaction costs. Satoshi Nakamoto, the creator of Bitcoin, created the first cryptocurrency in 2008. It began as open-source software for money transfers. Since then, plenty of cryptocurrencies have emerged, with some focusing on specific fields.
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