Definition
A limit order is a type of trading order that sets the exact price at which a trader is willing to buy or sell a cryptocurrency. For a buy limit order, the trade will only execute at the chosen price or lower, while a sell limit order will execute at the chosen price or higher. This makes the limit order a way to control the execution price instead of accepting whatever price is currently available in the market. If the market price never reaches the specified level, the limit order can remain open and unfilled.
Limit orders are commonly used in centralized exchanges, often called a CEX, where they appear in the orderbook alongside other pending buy and sell orders. They contribute to the visible supply and demand at different price levels and help shape the spread between the best available buy and sell prices. Because execution is not guaranteed, a limit order mainly serves as a price control tool rather than a certainty of immediate trade completion.
Context and Usage
In a trading environment that uses an orderbook, limit orders define the prices at which traders are prepared to transact and form the structure of the market. They differ from related instructions like a stop-loss order or take-profit order, which are typically triggered when the market reaches certain prices and then submit new orders. A limit order, by contrast, is already active at its specified price and simply waits for the market to match it.
On a CEX, traders often place multiple limit orders at different price levels, which collectively influence the spread and overall market depth. In this context, a limit order is a basic building block of order-driven trading, providing transparency about where participants are willing to buy or sell without forcing them to accept the current market price.