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Stop-Loss Vs Stop-Limit Orders

Any novice trader coming to the market wants to immediately get involved in the work and avoid losses. However, due to inexperience and lack of sufficient knowledge in this area, beginners often find themselves trapped and fall under risks.

However, it’s worth remembering that success in trading is possible only when losses are completely absent or are as limited as possible. Brokers offer beginners several tools that practically eliminate losses and help to avoid risks. The most popular of them are two orders —stop loss vs stop limit. Let’s figure out what it is and how it works!

What Is a Stop-Loss Order?

In simple words, a stop-loss is an application that helps to sell a stock at its market price without additional losses. The client sets the price they need, at which they want to sell the asset, so as not to go much into the negative. Next, the user waits for the price of the financial instrument to approach the desired value. If this happens, the stop-loss will be executed at the market price that is closest to the one set by the trader.

The basic assumption behind this strategy is that if the price falls this far, it may continue to fall even more. The loss is limited to the sale at this price.

What Is a Stop-Limit Order?

If a stop-limit order is set, there’s no slippage. The sale of shares will take place at the exact price you set, but if the market value doesn’t touch this value, the stop-limit won’t work. That is, there may be a situation when there is no counterparty who wants to buy the asset at your price. This often happens with a rapid decline in quotations.

In general, stop-limit orders are similar to stop-loss tools. But, as indicated in their name, there’s a limit to the price at which they will fulfill their obligations. Two prices are indicated in a stop-limit order: the stop price, which converts the order into a sell order, and the limit price. Instead of turning into a market sell order, a sell order becomes a limit order that will only be executed at the limit price or better.

Placing Both Order Types at the Same Time

Since crypto trading carries great risks, it’s important for the client to always have all the necessary tools at hand to minimize them. However, it’s essential to act quickly in this market, so simultaneous placement of two types of orders at once is necessary to make a real profit.

In the case of stop orders, everything is obvious: you determine the amount of loss in advance so as not to lose more. This allows you to store cryptocurrency for as long as you need, without fear that one day the exchange rate will collapse, and your portfolio will noticeably sag. So, you can place orders simultaneously in three ways:

  • by using third-party services that offer advanced tools for traders and provide access to the trading terminal via the API;
  • by using bots, — trading robots should be set up by you in advance, so this option is more difficult, and besides, access is also provided through the API, which is unsafe;
  • by using the exchange’s funds, — this method is both simple and secure since you don’t need to trust API keys to third parties, and reliable exchanges on the internet are also enough (for example, TabTrader or Binance).

Summing up, it’s worth noting the effectiveness of both tools. Stop-loss and stop-limit can provide different types of protection for both long and short investors.

This article is for information purposes only and should not be considered trading or investment advice. Nothing herein shall be construed to be financial legal or tax advice. Trading Forex, cryptocurrencies, and CFDs poses a considerable risk of loss

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