Gaining knowledge about limit orders

Gaining knowledge about limit orders, stop orders, and RFQ orders.

Using Virgo Wealth can feel familiar to many, as its OTC Direct interface resembles a traditional trading platform and offers similar features. Users can view real-time pricing for popular trading pairs and execute trades with ease and speed, just like on a retail platform. The platform has recently been updated with an enhanced set of charting tools to assist in trading decisions. In addition, stop orders can now be placed alongside the existing options of limit and RFQ orders.

If you are making the switch from a conventional exchange to OTC Direct, you may already be familiar with limit and stop orders, but RFQ orders are typically used only by institutional investors. This article aims to explain the various order types so that you can reduce your losses and maximize your investments.

Limit Orders and Stop Orders

Individuals who have invested in both cryptocurrency and stocks likely have a basic understanding of limit and stop orders. When placing either of these orders, the investor informs the broker or exchange that they do not want to purchase the asset at the current market price. Instead, these types of orders allow for execution when the asset’s price matches a specific price specified by the investor.

While limit and stop orders share similarities, there are two key differences between them: Limit orders are typically used to execute an order at a price that is equal to or better than the price specified, whereas stop orders are executed at a specified price point in the direction that the asset’s price is moving. Properly employing both types of orders, or a combination of the two in the form of a stop-limit order, is crucial for achieving success as a trader.

 Limit Orders

Limit orders can be used in both buying and selling an asset. For example, let’s say you want to buy $500 worth of a coin at $500 or less, then you would set a limit order that would only be executed when the price reaches or falls below the price point you specified. However, it is not possible to set a limit order above the current market price as a better price will always be available. Conversely, if you want to sell $500 worth of a coin for $600, then you can set a limit order that will only be executed when the price reaches or exceeds your specified price point. It’s important to note that while the price of a limit order can be guaranteed, fulfillment of the order cannot be guaranteed as limit orders are visible to the market and require enough liquidity of a certain asset for the order to be executed.

Stop Orders

Stop orders have different variations, all relying on a price that is not yet available. As previously mentioned, stop orders are placed in the direction of the asset’s price movement. For instance, if an asset is trending upwards, a stop order would be set above the current price. The market will execute the order when the asset reaches the specified price point. On the other hand, if an asset is trending downwards, stop orders are typically used to reduce losses once a specific price point has been attained.

Stop-Limit orders

A stop-limit order is a combination of a stop price and a limit price that triggers a limit order to buy or sell an asset. When a stop price is met, the exchange will activate a limit order. For example, if you set a limit order to sell a coin for $700, it will be executed once the price hits $700. A stop-limit order takes it a step further by selling the coin only if its price has dropped from $750 to $710. This order is useful during periods of rapid price action, allowing an investor to minimize losses if the asset’s price moves unexpectedly or if their forecast is incorrect.

Although limit and stop orders are widely used in leverage trading and forex markets, they are especially useful in the volatile world of crypto investing where prices of digital assets can fluctuate significantly within hours. Utilizing stop and limit orders in such situations can help not only to minimize losses but also to capture profits.

Request-for-Quote (RFQ) orders

In conventional business operations, requests for quotes (RFQs) are utilized by organizations to request quotes and proposals from potential suppliers or contractors for specific tasks or projects. However, in OTC trading, where transactions involve large blocks of assets (in the case of Virgo Wealth, CAD$50,000 or more), RFQ orders may be required to facilitate transactions that are significantly larger than the norm.

Executing a large trade on an exchange carries the risk of price slippage and exposes the order to short-sellers who may profit from this. By placing an RFQ order, the OTC team is notified of the investor’s intent to execute the trade, giving them the ability to bid and ask for the most effective strategy to complete the transaction. This allows the investor to benefit from a large block trade while minimizing the risk of price slippage and maintaining market equilibrium.

Virgo Wealth not only supports standard market orders such as stop and limit orders but also caters to RFQ orders, enabling institutional investors to increase their trading potential significantly. Whether a transaction is relatively modest or extremely ambitious, Virgo Wealth can handle it.

To explore the next level of trading with Virgo Wealth, reach out to us at [email protected] for a demonstration.