Assuming the current price of BTC is $7,000, and Ann expects it to drop to $5,000. She intends to use a 10x leverage to buy 1,000 BTCUSD contracts when the price drops to $5,000. However, Ann is worried about not getting timely updates on the market due to her busy schedule and missing the opportunity to bottom fishing. What should she do?
In this scenario, Ann will be advised to use a Limit Order.
What is Limit Order？
A limit order allows traders to preset their order price, size and leverage. Using limit order, orders will only be executed when the market price meets or exceeds the preset price. This means that traders can use it to preset a buy order at a lower price or a sell order at a higher price.
Buying: Ann can buy BTC contracts at a preset order price of $5,000 before her working schedule. If the BTC price drops to $5,000 or lower, Ann’s limit order will be triggered immediately to buy the BTCUSD contracts at a price not higher than $5,000. If the BTC price remains higher than $5,000, Ann’s order will not be executed.
Selling: On the other hand, investors can preset a price higher than the current market price as a limit order to ensure that they sell at a higher price.
Earning Maker Fees from Limit Order
When a buy limit order price is lower than the best sell price (or a sell limit order price is higher than the best buy price), the buy (or sell) limit order enters the order book await to be executed. This order provides liquidity to the market. A liquidity provider, i.e. a maker, earns a trading fee of 0.025%.
However, one should be mindful that the limit order can be executed immediately and consumes liquidity from the market. For example, if the current best sell price is $7,000 and Ann presets a buy limit order of $7,100, her orders will be executed at $7,000 immediately. When a limit order consumes liquidity, i.e. as a taker, it will be charged with a trading fee of 0.075%.
Pros and Cons of Limit Order
In a highly volatile market, there is a great desire for limit order to guarantee the execution price. However, limit order comes with the risk that it may never get filled, especially when the order price is distant from the current market price.
How to place Limit Order?
Ann intends to buy 1,000 BTCUSD contracts at $5,000 with 10x leverage. How is she going to place the order on Bybit?
First, select the “Limit” option and you will be brought into the order page. After setting the leverage multiple, order price and quantity, click on the “Buy / Long” button.
The limit order placed by the trader will then enter the order book, waiting to be executed.