Limit orders let you choose a specific entry or exit price for your crypto trades. They are free to place and will not be filled until the token you want reaches the price you set!
With limit orders, you control how much you spend or receive through your crypto trades.
Used correctly, limit orders are a tool virtually any investor can use alongside token swaps in a robust trading strategy. This article breaks down how limit orders work, as well as how you can benefit from placing free limit orders on Matcha.
How limit orders work in crypto
Limit orders let the market come to you. With a limit order, you choose the price at which you want to buy or sell an asset. You can use limit orders to:
- Enter a position at a great price without following the chart.
- Exit a position during a price spike.
- Average in or out of a position through laddered limit orders.
You can think of limit orders as telling your price limit to the market. With a buy limit order, for instance, you are essentially saying “this is the highest price that I am willing to buy this token for.”
With a sell limit order, you are instead saying “this is the lowest price at which I am willing to sell.”
For example, you can use a buy limit order to only buy a token once its price per coin reaches $1,000 or lower. This means that the order will sit and wait for your chosen crypto asset to reach this price. It will not execute unless the price is met.
Set a limit order now for free!
Similarly, a sell limit order lets us set the price at which we want to exchange out of an asset we already hold. Going back to the example, you could put in a limit order to sell once your asset reaches a value of $1,100 per coin or higher.
When you place a limit order, you are not bound by the current price of assets. Instead, you can be as aspirational as you want. For instance, you could set up a buy limit order for Bitcoin or Ethereum at a fraction of their current price.
Of course, there is no guarantee that a limit order will take place in a timely fashion. If the asset’s price does not reach the limit that you set before it expires, your trade will not be executed at all. Want to learn more? Check out our blog on the difference between a market orders and limit orders in our dedicated article.
How to set free limit orders with Matcha
Matcha makes it easy to place decentralized limit orders for free in just a few minutes using a combination of the 0x API and smart contracts. Here’s how:
- Choose a token.
- Open the Limit order tab in the trade module
- Say how much to Sell and set a price.
- Set an Expiry time.
- Review the order and confirm in your wallet.
Let's take a look at each step in more detail.
Choose your token
To set a limit order, choose an asset to trade using the token search bar in the Matcha dApp.
You can place limit orders with most common ERC-20 tokens, including major players like USDC, DAI, and WETH. To place a limit order with a native token like ETH, you will first need to wrap your token to the ERC-20 standard so it is compatible with limit order smart contracts.
Set your sell limit order or buy limit order price
Once you’ve chosen your token, you can easily set a limit order by visiting the Limit tab located on the top menu bar of the trade window.
In this window, you can set your buy limit order or sell limit order by using the corresponding input boxes. Price shortcuts let you instantly choose a percentage higher or lower than the current market value, for quicker setup.
By default, adjusting the sell amount will also adjust the buy amount, and vice versa, based on the Limit price. By clicking the padlock icon you can choose to calculate the limit price based on the amount of tokens you want to receive instead.
Set the duration of your limit order
Next, you will need to set how long your limit order will wait on the market for before it expires.
Importantly, you are not charged any gas fee if your limit order expires without being executed. However, you will charged a transaction fee by the blockchain network for manually canceling your order before expiry.
That means it is best to set a duration that you are comfortable with when placing your limit order.
You can choose from one of the default duration options by selecting the Expiry field. You can also select Custom to input your own limit order duration up to a total of 28 days in the future.
Then, simply click Review order to check all paramaters are correct and finalize the process by signing the order with your crypto wallet.
For more in-depth information on how to set up and manage your limit orders, check out our Help Centre article with a step-by-step guide to creating limit orders.
Differences between CEX and DEX limit orders
Limit orders can be found on many centralized exchanges. However, outside of a few leading decentralized exchanges, this feature is not as common in DeFi.
Most centralized exchanges (CEXs) make use of order books and allow users to place limit orders as a native feature of the exchange. While some DEXs still use order books, this comes with its own liquidity issues in decentralized markets, which can offset many of the benefits of placing limit orders.
Today’s leading decentralized exchanges (DEXs) use Automated Market Makers (AMMs) as a modern solution for decentralized liquidity. But many AMM implementations on the market today do not currently support limit orders.
Limit orders on both centralized and decentralized exchanges typically require users to pay fees whenever they place a buy or sell limit order. This can be prohibitively expensive, as many limit orders are not even fulfilled in the first place.
Limit orders on a DEX
Matcha is a DEX aggregator that lets users easily place limit orders for free. Thanks to the 0x Protocol, this works through a process that combines the benefits of storing orders off-chain with the security and autonomy that comes with using on-chain smart contracts.
Using Matcha, limit orders are recorded off-chain using the 0x API. They are only executed on-chain once a match for a desired buy or sell limit order has been met. This means that you get to place limit orders for free and the taker will pay gas fees if your order is successful.
Once both participants in a trade are found, the transaction is settled through a 0x Smart Contract. As immutable and transparent pieces of code, smart contracts let you carry out transactions with other users in a network without centralized middlemen or counterparty risk.
For more information on how smart contracts power decentralized ecosystems, check out our article What is a smart contract.
Custody concerns on centralized exchanges
Another key difference between centralized and decentralized exchanges comes down to whether or not you actually have control of your coins.
When you use a CEX to place a sell limit order, the exchange holds your funds for you. If it is a custodial exchange, it will also hold your funds when your buy limit orders are complete. Learn how to withdraw crypto from centralized exchanges to trade with full custody of your funds.
With a DEX like Matcha, you retain full custody and control over your funds as you are interacting directly with a smart contract. In a world where centralized exchanges frequently fail to keep funds safe and can even exploit users, being your own custodian is the safest way to navigate the landscape.
How to use limit orders and swaps together
Limit orders are just one part of a well-rounded investment strategy. They can be used effectively with market orders.
Market orders (also known as swaps) are another type of order that you can make when trading crypto.
When you use a market order, you are telling the market that you want to buy in as soon as possible at the best available price. This means that your trade is almost guaranteed to go through, but it might not be at an ideal price point.
By using limit orders and swaps together, you can access the best of both worlds.
When you need a trade to happen quickly, you can use swaps. This will allow you to buy and sell crypto whenever you need to get into a new position fast or access quick liquidity.
For your medium and long-term investments where you are not as pressed for time, you can use limit orders to carry out automated trades at even better prices.
For more information on the relationship between limit orders and market orders, keep an eye out for our upcoming article comparing the two order types in greater detail.
Using limit orders to catch the dip
We weren’t lying when we said that limit orders have virtually limitless potential.
On platforms where you don’t have to pay fees for limit orders, you can use your limit orders to dream big. You can freely lowball just about any digital asset on Ethereum, Polygon or Binance Smart Chain in the off-chance that your order goes through.
You can also use limit orders strategically as a way to catch price dips. You can do this by determining the price at which you are willing to buy an asset, and setting a limit order accordingly.
You can even take things a step further, and set multiple buy limit orders across a whole range of cryptocurrencies at the same time. One way this could be used is to automatically buy specific assets whenever their price drops by a specific percentage.
Best of all, this method of using limit orders lets you play the long game without having to keep a watchful eye over every movement in the crypto market.
Using limit orders to realize your profits and minimize risk
Limit orders are not just about buying in. They are also about walking away at the right time.
You can use sell limit orders to sell an asset you hold once its price climbs to a certain point.
For example, you might decide that you would gladly cash out your coins once they appreciate in value by 20%. You could set a sell limit order which would automatically conduct the transaction for you.
This would allow you to realize your profits once your crypto reaches a high enough price to justify selling. Sell limit orders can also allow you to automatically take advantage of flash price hikes, even at times when you are not actively day trading.
Averaging in or out of positions
Importantly, you can also choose to only sell a portion of your assets rather than your entire position. You can use limit orders in this way to reduce your exposure and lower risk without shutting the door on a potential opportunity to benefit from future price movements.
To do so, you would place multiple sell limit orders at successively higher prices, eventually selling enough coins to cover the cost of your initial investment. This would then let you hold a position while having less at stake.
Trade better with Matcha
Limit orders are just one tool that you can use to be a more effective trader. On Matcha, you have all the essential tools: limit orders, swaps without fees and even cross chain swaps that let you find opportunities on other chains.
Browse our extensive range of free educational articles today to learn more tools, strategies, and concepts that will help you better navigate the crypto landscape.
