Stop loss order is a type of order that lets you set a value at which an asset should be immediately sold to avoid further losses, hence the name. It can work with crypto trading just as well as it does with regular investments. In fact, in the current market climate, such orders are a blessing.
If you haven’t started using them yet, you should. They are an additional feature that lets you be more precise with your trades, and many beginners or casual traders neglect them. They are, however, invaluable, because you can’t always keep an eye on the market. Stop-loss orders will close a position in your stead.
Definition of Stop-Loss Orders
Stop-loss orders are basically an exchange parameter that designates the lowest value point you’re willing to risk. You can specify a precise value in a stop-loss order. If the value of the coin reaches it, your position will be automatically closed – i.e. the coin will be sold at that value if it’s ever reached.
As you might’ve guessed, the position should be open before a stop-loss order is specified. In short, a purchased coin will be sold for $5 apiece if this value is ever reached and if your order is specified at that amount. It also should be lower than the current market price. There is a less popular order type that sells your coins when they reach a specific price higher than the current one. It’s called take-profit order.
How to Select the Amount
The choice is entirely up to you, and it can be a somewhat difficult one.
The stop-loss is designed to be the lowest threshold you want the coin to drop. Unless you have a specific idea in mind, it can’t be too high up. If it is, it can be sold uselessly for no profit before a big increase in value. You can never know these things. And that’s why stop-loss is supposed to be the last resort (usually).
If you feel like the trade isn’t going at all as planned, you can sell the coin manually before it even reaches the stop-loss. For many people, stop-loss is supposed to be an instrument to avoid unacceptable losses while they aren’t looking. That’s the whole deal. But you can use it however you like.
With the current situation in the crypto market, you absolutely have to put stop-loss orders on every trade. And they often need to be higher than usual, because crypto has a tendency to enter long downward spirals nowadays.
How to Put an Order
These orders are present at every exchange. There is no self-respecting crypto exchange that neglects stop-loss orders because they are a basic need. It’s usually an additional bar right beside the quantity and the price. On Binance, for instance, you can enable stop-loss in a third tab in the main purchase menu – next to ‘limit’ and ‘market’.
All you need to do is enter a price that you want your coins to stop at if it comes to falling.