What is a Limit Order? A Basic Cheat-sheet

Have you ever been curious about what a limit order is or how to use one? There is a number of financial technicalities that we don’t understand for those who are just starting out. The first step in understanding the limit order is to understand the definition.

what is a limit order

What is a Limit Order?

A limit order is an essential approach for traders when it comes to day trading crypto on leverage. What is a limit order, exactly? Stop orders, which are only executed when the price reaches a certain level, are probably familiar to you. What if, on the other hand, you wanted to buy or sell an asset at a price that isn’t available on the open market? Limit order comes into play in this situation.

A limit order is the most fundamental form of trading instruction. They can also be difficult to use, and that is why we’ll go over the key points here. It is placed to be filled on the premise of time – immediately – at the current price, whereas market orders are placed to be filled on the premise of a set price within a time frame.

This is known as a “good ’til canceled” order (GTC) and it allows you to specify the lowest price at which you will sell an asset and the highest price at which you will buy it. If you want to open an order to buy or sell an asset at a price lower than the current market price, you would use a stop order (which I’ll explain in the next blog post).

Let’s have a quick example on Limit Order

Now that you know what a limit order is, let’s look at where you can use them.

Limit order is most commonly used when you want to ensure that the price of an asset does not fall up or down a certain level. Assume the crypto price is currently trading at $10,000. You could place a sell limit order for crypto at any price between $9,000 and $10,000 to guarantee that you get out when the price begins to drop. The limit order would take effect as soon as somebody else sells crypto for less than or equal to your set price matched the selling price ($9,000 or $10,000).

Is Limit Order Important?

The major downside of a limit order is that it will not be filled if the limit price is not met by an interested buyer or seller within the time period specified. Second, and perhaps most importantly, timing is critical when placing a limit order. Every order placed in an exchange’s order book is time-stamped and trades placed first take priority over orders that are approved subsequently, even if they have the same limit price as an order placed later.

So, how do we get the limit order filled quickly?

If you’re using a limit order, and you want them to be filled quickly, the way to do this is to pay really close attention to your order book.

So let’s just say that you want to go LONG. You want to keep moving your limit order up, such that is just under but not equal to the lowest ask.

If you want to sell short, then you’re moving your sell short order, in the same way except you want it to be just above but not equal to the highest bid.

The more aggressive you are with moving your limit order to get as close to those numbers as possible, the faster you’re gonna get filled. Because the bids and asks move around so much. You just have to be willing to continuously modify your limit order. Also, if you haven’t already, just make sure that Post Only (the whole checkbox) is clicked. That way Phemex won’t accidentally fill you as a market order so you have to pay for it.

Here’s how to place a Limit BUY order on Phemex:

Here’s how to place a Limit SELL order on Phemex:

My Final Thoughts

Understanding what is a limit order is one of the effective strategies to help you maximize profits while limiting risk in day trading. Limit orders can help you create order limits so that you only execute buy or sell orders at specific prices.

Just keep in mind the time frame and take note that your order may or may not execute. Always consider how your order types fit into your overall day trading strategy.


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