Understanding Stop Orders

A Stop Order is a sort of order in trading that interacts with a position in a specified way when a specified price is hit. There are several different types of stop orders. Although intrinsically similar, each of them has a different purpose. You can put several stop orders at the same time for a more nuanced trading experience.

In fact, you are recommended to use at least some of these orders. It will let you automate the selling and buying processes under different circumstances – for instance, during a sudden price fall. There are several different categories of such orders, fit for very different scenarios.

Stop Market Orders

Stop market orders are a vast category of stop orders. Stop market orders specify that a cryptocoins (or any other asset) needs to be bought or sold once a specific price is met on the market. The two main types of market orders buy loss and sell loss orders, but there are more subtypes that vary depending on their purpose.

The stop marker orders realize an idea of a controlled, autonomous investment. As such, these orders are essential if you want to control several securities, if the current market situation is often unstable or if you want the asset to stay in a specified price interval between two designated thresholds.

Sell Stop Orders

A good example of a sell-stop order is a stop-loss order. Stop-loss orders are placed far below the current market price to stop the coin price from plunging deeper. When a sell stop price is reached, the coin is automatically sold regardless of your presence on the exchange. That’s the whole point of having a stop-loss order.

Other sell stop orders also exist. For instance, there is a take-profits order, a complete opposite of a stop-loss, in which the position to closed upon reaching a price higher than the current one. Take-profits is clearly not as popular, but it can be useful for shorting or if you feel the price will bounce back down after a specific level.

Buy Stop Orders

It’s another extremely important type of stop order. Instead of selling, the coins will be bought after crossing a specific threshold – beneath or above the current market price. These orders must also be used with sense and reason. It’s typically used to mark the lowest predicted point a price will hit before bouncing back up.

You can use this order in conjunction with other orders – sometimes, the use of several stop orders is limited by the broker. If it’s allowed, however, you can create wonderful, multilayered strategies that will work without your supervision. That’s how professionals do it.

Stop-Limit Order

Stop-limit orders are a separate type of stop orders that combines a stop market order and a limit order. It means that the coin will be sold and bought at a specific price (if reached) and in a specific quantity. Although very useful, you need to make sure that your predictions of the market are on-point.

If you buy too few coins at a favorable price, you may regret it later. Still, even so it will be just a loss of potential income, not an actual loss. You are very much advised to use this order if the broker allows it.