What is a Stop-Loss Order?
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When trading BTC or any other Altcoin, it can be a profitable industry. Of course, there are risks, as well. Traders that use traditional trading methods can sometimes benefit, but in most cases, it is a cynical move. Stop-loss order is one of the most widely used tools to limit a trader’s downside when trading crypto. There are many types of stop loss method that are used in different trading scenarios which depends on the crypto market condition. It can occasionally be problematic to evade loss due to the state of the crypto market. However, a stop-loss order can be helpful even for new traders.
When do you use Stop-Loss Order?
Unlike a limit order, which is used to profit from the current market trends, a crypto trader will use a stop-loss order to limit possible losses to no more than the trader can take on. Stop-Loss does not only maximize profits for the trader, but it also increases the trader’s options for strategizing, by increasing their control on trade’s risk factor. For stop-loss orders to be valid, the trader still needs to analyze the market trends and forecast how the crypto market will behave and then tailor the stop loss based on their analysis, or else it may fail the trader in having a loss. Once the trader has a clue about the market trend, they then decide the price and the type of stop-loss order they wish to use.
Stop-Loss Order types
A full stop-loss order liquidates all of the trader’s crypto-asset when it is triggered. A full stop-loss order is beneficial in the crypto market, especially with unexpected price fluctuations. This backup will help the trader in not losing out on potential profit; they will have avoided a loss if the price of the crypto asset remains low. Hence, when inputting a full stop-loss order, the trader must ponder the risk and reward of both trade scenarios.
When a trader places a stop-loss order, it will alter according to the market trend for the crypto asset the trader is trading. What a trader would do is set trailing orders, which is the variance between the market price of the crypto asset and the stop-loss value. If the price of the crypto coin increases, the stop-loss value will increase as well. If the price decreases, the stop-loss value will not change, and a stop-loss order will be triggered if the original amount is reached.
Trailing stop-loss has the edge over a traditional stop-loss order because it permits the trader to top the maximum loss irrespective of how far the market trends have gone in their favour. Also, this exempts the trader from having to adjust the stop-loss in response to the market trends manually. On the other hand, traders must realize a trailing stop-loss may become a liability in a market that is rising.
There are several risks when using stop-loss orders. For instance, if stop-loss orders are placed too high, the trader dangers themselves in losing out on a price increase that would be beyond the stop-loss value. This risk happens in a very volatile market.
Although stop-loss orders are used to minimize the loss caused by market trends, it does contain some loss of assets and could end up being a massive loss for traders. When selecting stop-loss, crypto traders must analyze the risk-reward ratio, as well as the significance of the traded crypto asset.
Our native desktop app, HyperTrader, will support the above orders in the near future.
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