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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.
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
How To Invest In Cryptocurrency?
There are two ways of investing in cryptocurrency, mining and via exchanges. Cryptocurrency mining is considered the procedure of verifying and adding transactions to the blockchain public ledger. Another option is via cryptocurrency exchanges. Exchanges generate money by collecting transaction fees, but there are alternative websites where you can interact directly with other users who want to trade cryptocurrencies.
Is Cryptocurrency Safe To Invest In?
Cryptocurrency investments are subject to market risks, but if sufficient security measures are not taken, trading accounts can be maliciously accessed. Investments come with risks and uncertainties, and we cannot claim that any digital currency investment is risk-free. Buying and selling cryptocurrencies can be risky even if the trader is knowledgeable about the market and treats their coins carefully.
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.
What Is The Safest Cryptocurrency To Invest In?
Bitcoin has had the highest market capitalization, has been around the longest, has the most experienced development team, and has enormous network impact and brand recognition. As a result, while trading cryptocurrencies, the rate of return on Bitcoin is commonly used as a benchmark. However, the risks associated with cryptocurrencies remain, and the safest cryptocurrency for you depends on your analysis.
Are Cryptocurrencies Legal In India?
In India, cryptocurrency is legal, and anyone can buy, sell, and trade it. Because India lacks a regulatory system to regulate its operations, it is presently uncontrolled. According to the Ministry of Corporate Affairs, companies must now document their crypto trading/investments inside the financial year.
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.
Who Invented Cryptocurrency?
Satoshi Nakamoto invented cryptocurrencies and the technology that makes them function in 2009. The presumed pseudonymous individual or persons who invented Bitcoin used this identity. In addition, Nakamoto created the first blockchain database. Even though many people have claimed to be Satoshi Nakamoto, the person's identity remains unknown.
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.
How To Invest In Cryptocurrency Stocks?
Cryptocurrency can be purchased in two ways: through mining or exchanges. The process of confirming and adding transactions to the blockchain public ledger is known as cryptocurrency mining. Cryptocurrency exchanges are another option. Exchanges make money by charging transaction fees, but there are alternative platforms where you may communicate directly with other cryptocurrency traders.
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.
Disclaimer: Cryptocurrency is not a legal tender and is currently unregulated. Kindly ensure that you undertake sufficient risk assessment when trading cryptocurrencies as they are often subject to high price volatility. The information provided in this section doesn't represent any investment advice or WazirX's official position. WazirX reserves the right in its sole discretion to amend or change this blog post at any time and for any reasons without prior notice.
