If you’re willing to get to know the stop order definition and learn how exactly this concept is implemented in crypto trading, this guide is for you – read on for all the details!
What Is A Stop Order?
A stop order is a type of trade order that automatically buys or sells an asset when it reaches the ”stop price”, which is a certain threshold predetermined by the user.
What You Need To Know About Stop Orders
Stop orders are widely used in traditional stock trading and have also gained prominence in the crypto space, as they are a useful tool that enables investors to limit their potential losses or to secure profits.
When a stop order is used to buy an asset, it is known as a stop-entry order. It is triggered when the market price of an asset rises to a predetermined level, after which a buy order is executed at the next available price. This type of stop order is often used as a means of taking advantage of an upward trend.
On the other hand, a stop order used to sell an asset is referred to as a stop-loss order. It activates when the market price of an asset decreases to the level determined by the crypto investor and performs the sell order at the next available price point.
It’s important to note that a stop order, whether stop-loss or stop-entry, doesn’t guarantee that the trade will be executed at the stop price. The order will be finalized at the next available market price, which may be different from the predetermined threshold.
This can result in slippage, which means that the trader may sell or buy the asset for a price that is different from the expected one, potentially incurring a larger loss or missing out on potential profits.
Therefore, stop orders should be used as a supplement to a well-diversified trading strategy, and traders should carefully consider market conditions and their individual risk tolerance when setting them.
