There are many things to consider when deciding to trade cryptocurrencies. It’s easy to forget to take into consideration managing risks when you focus on making a profit. When trading in the crypto markets, it’s essential to use a stop-loss order — as it could mean a world of difference. In general, most traders can benefit from implementing a stop-loss order.
What is a stop-loss order?
A stop-loss is an order designed to limit a trader’s loss when trading in a position. Much like the traditional markets, when trading cryptocurrencies like Bitcoin and altcoins, the markets can move in an unfavorable direction.
When a cryptocurrency reaches a specific price and moves in the opposite direction than intended in the trade, a stop-loss will limit your capital loss in a particular position. For example, if you place a stop-loss order at a price that is 20% below the price you entered the trade, your losses will be limited to 20%.
Setting a stop-loss order is easier than checking the markets whenever the price dips and setting price alarms to make sure you can execute a trade before you lose more capital. Using a stop-loss order will enable you to step away from monitoring the markets all day. In general, a stop-loss order is similar to an insurance policy for your trade.
By setting a stop-loss ahead of time, you will be able to remove your emotions with the trade. For example, some traders could have a false belief that the cryptocurrency will eventually move in a favorable direction; and when it doesn’t, this delay could be quite costly.
To be a successful trader, it’s essential to have confidence and follow through with your strategy. Setting stop-losses will ensure you stay on track with your pre-set strategy and prevent you from making impulsive decisions.
However, not all stop-losses can guarantee that you successfully exit a losing trade. Therefore, it’s essential to consider the difference between a stop-limit and a stop-market order.
What is a stop-limit order?
Using the limit order as the underlying order type, stop-limit orders are made up of two prices — the stop price and the limit price. When the cryptocurrency hits the stop price, the limit will then become active. Since limit orders are only filled at the order price or a better price if available, stop-limit orders are not always filled.
Since the orders may not guarantee to be filled, you may not always get out of a losing trade if the market moves too quickly in the undesired direction. Subsequently, if the order doesn’t get filled, you may then be exposed to even more significant losses.
What is a stop-market order?
Alternatively, you can choose to use a stop-market order, which is generally known as a stop-loss order. A stop-market order is also meant to protect you when the market moves unfavorably, but it only requires one designated price.
Due to the fact that stop-market orders use market orders as their underlying order type when the cryptocurrency hits the designated stop price, the order will execute as a market order. This means that you can get out of your losing trade, which could be used if you worry about losing your capital when the market moves unfavorably.
Although sometimes slippage could happen, which could lead to more price difference than intended, the market order still gets you out of your position, protecting you from further losses. Slippage doesn’t always occur, usually only under day-trading volatile cryptocurrencies or digital assets with very low volume.
How to place a stop-market order on a crypto exchange like Binance
Unfortunately, many crypto exchanges do not offer a stop-market order if you decide to use the market order as the underlying stop-loss order type. However, it’s essential to use different stop-losses with different cryptocurrencies under different conditions. Having the option is always better!
To be able to use the stop-market order type, you can try out CoinPanel’s trading platform. The all-in-one crypto trading platform allows you to set stop-limit and stop-market order types for cryptocurrencies you already have positions in. You can simply connect your Binance exchange account and directly trade on CoinPanel.
CoinPanel’s Full Trade feature revolutionizes the way you set your trading strategies as well. A Full Trade with CoinPanel includes entry, take-profits, and stop-losses. This way, you can stick to your strategy and prevent making trading decisions out of fear.
Check out CoinPanel, and enjoy the freedom of choosing between stop-loss order types!