Limit Orders allow the user to set a limit at which assets are purchased/sold. Limit orders are substantially more secure and convenient than Market Orders in that there is no slippage whatsoever, which means that orders will be filled at the exact amount specified (provided the order is filled).
How it works
Given enough confidence in a user’s ability to predict price movements correctly, an exchange that offers a Limit Order will provide a “Limit” window, along with the window in which the number of assets is to be specified. This window is to be filled with the precise amount the asset is to be sold or bought for.
For example, one of the most notorious strategies in the stock market (although not necessarily the most gainful) is to “buy low, sell high” (extreme example). The idea is that assets are to be purchased when the price is going down and re-sold when it goes up. If a user is confident that the price will continue dropping (having analyzed the charts and made the decision), they can set the desired price amount to a certain level and create the order. When (and if) the price drops to that level, the assets will be bought as the order gets filled, and then it is only a matter of setting a Limit Order for selling when the price is substantially higher.
Purpose and distinctive qualities
When handled correctly, Limit Orders, besides from their other advantages, are 100% safe. Should the user set too low a price counting on the asset to get drastically cheaper, the worst possible outcome is that it won’t get filled (meaning no losses). Also, the user can choose how long the order will remain for until it gets retracted ( a “good til canceled” order remains in action until it is terminated by the user).
Limit Orders also come in different forms depending on other conditions attached to them, such as “all or none” orders, which assume all the assets will be sold at the same time - or none, and “fill or kill” orders, which should be fulfilled now - or never.
What to take into consideration
The cryptocurrency market is strongly influenced by regulation (and other related events). While there is no guaranteed way of telling which way it is going to go, it is almost certain that when news reaches the users, the price will experience fluctuation, especially if there are cardinal changes. Limit Orders are there for long-term strategy.
For example, if a user finds out (hypothetically) that some country is to ban cryptocurrency altogether, they can be certain that certain currencies will go down in price. It is at that point when a user can choose to set a Limit Order somewhere very low and the asset will be automatically bought low. Setting a Sell Limit Order at a convenient threshold, the user can switch to another activity until the asset automatically sells high (at this point it is important to accurately analyze an asset’s ability to recover).
Limit Orders are favored by users who want to do their best to take unpredictability out of trading. The general recommendation is to choose Limit Orders over Market Orders, all other things being equal.