Crypto trading can sometimes feel like chaos on fast-forward.
Prices bounce around, candles shoot up and down, and you’re left wondering if you just bought high and sold low in the same breath.
That’s where the limit order comes in.
If you value control over chaos, the limit order is your trusty sidekick.
In this guide, we break down what a limit order is and show you how to use it to trade crypto with more clarity and confidence.
What is a limit order?
A limit order is an order type that lets you set an exact price at which you want to buy or sell an asset. In other words, you are telling your trading platform you will only trade at your specified price or a more favorable price.
- Buy limit order: You set the maximum price you’re willing to pay for an asset. Consequently, the order will execute only at that price or lower (cheaper). For example, if you set a buy limit at $100, the trade will only happen at $100 or below—you won’t pay more than $100.
- Sell limit order: You set the minimum price you’re willing to accept for selling an asset. The order will execute only at that price or higher (more expensive). For example, if you place a sell limit at $150, your asset will only sell at $150 or above—you won’t sell for less than $150.
With a limit order, you are choosing price over speed. You might have to wait, but you ensure you don’t get a worse price than you wanted. But there’s a catch: execution is not guaranteed. The market might not reach your price, so your order can remain unfilled indefinitely if conditions aren’t met.
How limit orders work
When you place a limit order, it enters the order book. The order book is basically a list of all pending buy orders (bids) and sell orders (asks) for a given asset. Your order will sit there “in line” at your specified price until it finds a match.
Here's what's happening behind the scenes:
- Order matching: Trades occur when buy and sell orders meet compatible prices. A buy limit order will only match with a sell order at that price or lower, and a sell limit will match with a buy order at that price or higher. For example, if your buy limit is $50, it will wait until someone is willing to sell at $50 or less. If someone is selling at $49 (which is even better for you), your order can match at $49 because it satisfies your limit price condition. The trading platform’s matching engine automatically pairs orders when a buy and sell price overlap. Price priority comes first (the best prices get filled first), and then time priority—orders are filled in the order they were placed if multiple orders exist at the same price.
- Partial fills: It’s possible to get your order filled partially. This happens if the market has some but not enough volume available at your limit price. For instance, you might want to buy 10 units at $40,000, but at the moment only 5 are available at that price—in this case, you’ll buy 5 and the remaining 5 units will stay on the order book waiting to be filled. Partial fills are common in limit orders. The unfilled portion of your order remains active until more of your order can be matched (or until you cancel the order). You are only charged for the portion that was actually traded.
- Creating liquidity: While your limit order is waiting, it is visible to the market. Other traders can see there’s an order at that price (though not who placed it). Your order essentially adds liquidity to the market by being available for others to trade against. Because of this, limit orders that sit in the order book are called “maker” orders (you are making liquidity), and exchanges may reward this order type with lower fees. If someone places an opposite order that crosses your price—for example, a seller agrees to your buy price—then a trade executes and your order (or part of it) gets filled. If your order fully fills, it’s removed from the order book. If it only partly fills, the remainder stays posted.
When and why to use a limit order
Here are some common scenarios and reasons to consider using a limit order:
- Target price: If you’ve done your analysis and decided you want to buy at a certain low price or sell at a certain high price, a limit order lets you set that exact target.
- 24/7 markets: If you’re not able to monitor the markets constantly, limit orders are very handy. You can set an order and walk away, knowing that if the price hits your specified level, the trade will execute without you being there.
- Dips & rallies: Market prices can spike up or down quickly. If you anticipate a sudden dip to a certain price (or a jump to a certain high), you can place a limit order in advance at that price. This way, if the sudden move happens even while you’re away, your order could execute and catch the opportunity.
- Costly slippage: In fast-moving or volatile markets, using a market order can be risky because the price might move before your order fills, causing slippage (you end up buying higher or selling lower than intended). If you want to avoid that, limit orders can help by locking in the target price.
- Trading size: When you plan to trade a large position, using a limit order can prevent you from moving the market too much. A big market order might sweep up the order book and cause a noticeable price change (and slippage against you). By using a limit order, you ensure you only buy/sell at your set price, even if it means the order fills gradually.
- Lower fees: Cryptocurrency exchanges may have a fee structure that charges less for limit orders that sit on the order book (these are called maker orders) and more for market orders (taker orders). For a cost-conscious trader, this may be a good reason to prefer limit orders when time allows.
Risks of using limit orders
While limit orders are a great tool, they do come with their own set of potential downsides.
- Non-execution: The biggest risk with a limit order is that it might never execute. If the market price never reaches your limit price, then your buy or sell won’t happen.
- Partial fills: As mentioned earlier, your order could fill only partially if there isn’t enough volume at your price. It’s not usually a huge problem, but it’s something to be aware of.
- Missed opportunities: By insisting on a specific price, you might risk missing market moves. This opportunity cost is the trade-off for using a strict price limit.
- Price gaps: Sudden news or whale trades can cause the price to leap quickly. If the price moves past your limit before any trade occurs at that price, your order will not execute. While this kind of skipping is not common, it can happen in extremely volatile moments.
- Limit placing: Set buy limits below the current market price and sell limits above the current price, otherwise you’re not actually “limiting,” you’re just trading at market. Always double-check where the market is relative to your limit price to ensure you’ve placed the order correctly.
Limit order vs. market order
Limit orders and market orders are two fundamental ways to execute trades, but they serve different purposes.
- Speed vs. control: A market order prioritizes speed. It tells the trading platform to buy or sell as soon as possible at the best available current price. A limit order prioritizes price. It will wait until the market price meets your specified level (or better) before executing. So with a market order, you get near instant execution (as long as there’s someone to trade with), whereas with a limit order, you might have to wait, but you’ll only trade at the price you wanted.
- Execution certainty: Market orders almost always execute right away because you’re taking whatever price is out there now. The only time a market order might not fill is in an extremely illiquid market or if trading is halted. In contrast, limit orders are not guaranteed to execute at all. If the market never hits your price, the trade won’t happen.
- Visibility & fees: A market order is generally executed instantly by consuming the available orders from the order book (thus removing liquidity). This makes it a “taker” order, and exchanges may charge a slightly higher fee for market orders. A limit order, if it doesn’t fill immediately, sits on the order book and adds liquidity (making you a “maker”). Exchanges may reward this with lower fees. Additionally, limit orders are typically visible on the order book. This transparency lets other traders see where supply and demand might be, whereas a market order doesn’t appear on the book (it just executes and disappears).
Order trading with Phantom
Beyond spot trading, Phantom Perps enables eligible users in permitted jurisdictions to trade perpetual futures using a variety of order types.
Most perps platforms today are designed for pros with complex trading features, which can be challenging and potentially dangerous for inexperienced users. But with Phantom’s intuitive, mobile-first design, you can easily open, close, and manage positions directly within your wallet. Even so, the same underlying risks apply, regardless of the fact that Phantom Perps may feel more straightforward to use.
FAQs
Disclaimer: This content is for general educational purposes only. It is not financial advice, investment guidance, or a solicitation to buy, sell, or trade any assets, products, or services. Past performance is not indicative of future results. Any examples or strategies discussed are for illustrative purposes only and should not be considered as recommendations. Perpetual futures are complex, high-risk instruments that are not suitable for all investors. Phantom Perps are not available everywhere. This guide is not intended for UK audiences.
