Limit Trading

Limit trading is a way of trading on a cryptocurrency exchange in which a user specifies a price at which they want to buy or sell and submits the order to the exchange's order book, waiting to be matched with other users. The order is matched and executed. The advantage of limit trading is that it allows users to control their transaction prices and avoid the adverse effects of market fluctuations; the disadvantage is that it may take a while to complete the transaction, or the transaction may not be completed completely.

How to Place a Limit Trade?

1. Select a Trading Pair

Users need to first select the cryptocurrency pair they want to trade, such as BTC/USDT, ETH/BTC, etc. Different trading pairs have different market depths and liquidity, which affects the transaction speed and cost of limit transactions.

2. View the Order Book

Users need to check the exchange's order book to understand the current market conditions and supply and demand. The order book is a list showing all unfilled orders, divided into two parts: buyers and sellers. A buy order refers to an order in which a user wants to buy a cryptocurrency at or below a certain price, also known as a buy order or buy order; a sell order refers to an order in which a user wants to sell a cryptocurrency at a certain price or above, also known as a buy order. It is a sell order or sell order. Each order in the order book has a pending order price and a pending order quantity, which respectively represent the price and quantity that the user wants to trade. The gap between the highest buyer order and the lowest seller order in the order book is called the spread, which reflects the liquidity and competitiveness of the market.

3. Place a Limit Order

Users place a limit order based on their own expectations and strategies, specifying the price and quantity they want to buy or sell. For example, if a user wants to buy 1 BTC at a price of 10,000 USDT or less, he can place a limit buy order with a pending order price of 10,000 USDT and a pending order quantity of 1 BTC. If a user wants to sell 1 BTC at a price of 11,000 USDT or above, then he can place a limit sell order with a pending order price of 11,000 USDT and a pending order quantity of 1 BTC.

4. Waiting for Transaction

After a user places a limit order, he or she needs to wait for the order to be matched with other users' orders. If the limit order placed by the user can be immediately matched with the opposite direction in the order book (i.e. buyer vs. seller), the transaction can be completed immediately.

Pros and Cons of Limit Trading

Pros

• Control the transaction price: Limit trading allows users to specify the price at which they want to buy or sell, instead of completing the transaction at the current market price. This avoids the adverse effects of market fluctuations, such as missing out on buying opportunities when prices rise, or missing selling opportunities when prices fall.

• Reduce transaction costs: Limit trading allows users to reduce transaction costs because they do not need to pay high market bid-ask spreads (i.e. spreads). The spread refers to the gap between the highest buyer order and the lowest seller order in the order book, which reflects the liquidity and competitiveness of the market. If market liquidity is low or competitiveness is weak, the price difference will be larger, and users will need to pay higher costs to complete transactions immediately. If users use limit trading, they can avoid paying this cost and only need to wait for orders to be matched with other users.

• Implement trading strategies: Limit trading allows users to implement their own trading strategies, as they can set appropriate buying or selling prices based on their expectations and goals. For example, if users expect the price of a certain cryptocurrency to rise, then they can set a lower buying price and wait for the market to rebound; if users expect the price of a certain cryptocurrency to fall, then they can set a lower buying price. Set a higher selling price and wait for the market to rebound.

Cons 

• You may need to wait for the transaction to be completed: a limit transaction needs to wait for the order to be matched with other users' orders, which may take a while, or it may not be fully completed. If the limit order set by the user is too different from the market conditions, then they may not be able to find a suitable counterparty to complete the transaction; or if the market liquidity is insufficient, then they may not be able to fully complete their order. This will affect the user's capital utilization and rate of return.

• Possible missed opportunities: Limit trading requires waiting to be matched with other users' orders, which may miss some opportunities, such as when prices move rapidly. If the limit orders set by users are out of sync with market conditions, they may miss some favorable buying or selling opportunities; or if there is an unexpected event or black swan event in the market, they may face huge losses or risk.

• Possible to be manipulated: Limit trading requires one's order to be exposed in the order book, which can be manipulated or influenced by some bad actors. For example, some large orders may create pressure or attraction in the order book, affecting the psychology and decision-making of other users; or some malicious orders may create illusions or bait in the order book, deceiving other users into making unfavorable transactions.