What is Stop Limit Order In Crypto?

If you decide to become an active cryptocurrency trader, you may need more than just market orders. One order that provides you with better control and customizability of your crypto assets is the stop-limit order. Now, it is understandable that the idea of a stop limit order may be unfamiliar to a novice which is why we compiled this article to address that. Hence, subsequent sections discuss what is stop limit order in Crypto, highlighting everything you need to know.


What is a Stop Limit Order?

The Stop-Limit is a type of pending order that executes a trade once the market price strikes the desired trigger price you have reached in the trade.

Stop-limit orders combine aspects of both limit orders and stop-loss orders. While limit orders allow you to set a specific range of prices that you wish to trade at, stop-loss orders fix a stop price that can trigger a market order. 

The stop limit order tactic is very useful to you as a crypto trader. This is because it enables you to open numerous orders in the market without endangering your capital in just a single trade. Also, you will be able to manage your risk effectively by safeguarding yourself from unexpected price changes in the trading market.

Additionally, other people will not be able to see the orders, since they only get activated after the target price is reached.

There are generally two types of stop-limit orders that you can use. They include:

  • Sell Stop-Limit Orders
  • Buy Stop-Limit Orders

What is a Sell Stop-Limit Order?

A Sell Stop-Limit order is a type of pending order that will implement a Sell Limit order once your expected trigger price has been attained. Usually, this order can be fixed when the trigger price you set is lower or equal to the previous traded price. For example, a trader can make use of a sell-stop limit order to stop extra losses if the cost of the coin plunges below their expected trigger price by putting a limit order on it. 

Exciting Read – What is futures trading in crypto and how does it work?

How do I place a Sell Stop Limit Order?

How do I place a Sell Stop Limit Order?
How do I place a Sell Stop Limit Order?

For instance, if you have spotted a support level at about $10000 for the cost of Bitcoin, there is a high chance that if the cost declines below this support line it can likely lead to an abrupt downturn in the Bitcoin rate. In turn, this puts you at risk of incurring severe losses on your crypto trades in a bear market condition.

A Sell Stop-Limit can be set to safeguard you from this. You just have to fix the stop cost at around $10000 so that a sell limit order for $9950 will be implemented once the coin market value reaches the stop price.

This is a very effective tactic that you can use to manage your crypto risk and more particularly, to reduce your losses while trading cryptocurrency.

What is a Buy Stop-Limit Order?

This is a pending order that will perform a Buy Limit order once your expected stop or trigger price has been attained.

Basically, you can place a buy-stop limit order when the trigger price fixed is higher or just equal to the last crypto-traded price. For instance, a trader can use a buy-stop limit order by fixing the trigger price on a specified resistance with a limit order being put slightly higher.

If the trigger price is attained, the trader believes that the price will keep increasing, hence, the reason they decide to buy. 


How do I place a Buy Stop-Limit Order?

For instance, if you have observed a potential resistance level at approximately $9900 for the rate of Bitcoin, there is a small possibility that if the market cost breaks from this resistance level, there can be an abrupt upturn in price. This simply means if you don’t respond quickly enough, you can lose out on the chance to make again on your trade.

You can use a Buy Stop-Limit to capitalize on this price movement. Just simply fix the stop price at about $9850 so that a buy limit order for the cost of $9900 will be implemented once the market value strikes the stop price. This is a very good way to get a good entry point at the onset of any new price wave in the crypto market. However, there is a possibility that your trade will be implemented during a false price breakout, which implies that you have to fix the limit order high enough to reduce the risk of this occurrence.

Strategies for placing stop-limit orders

Now that we’ve discussed stop-limit orders and their types, let’s discuss some basic trading strategies for placing them. These strategies will help to increase the potency of your stop-limit orders.

1. Study the volatility of any asset you’re putting a stop-limit order on

It is best to set a small spread between your stop order and the limit order. This will increase the likelihood that your limit order will get filled. Nevertheless, if the asset you want to trade is volatile, you have to set your spread larger. 

2. Consider the liquidity of any asset you’re trading 

Stop-limit orders are incredibly useful when you are trading assets that have a large bid-ask spread or low liquidity. This prevents unwanted prices that are induced by slippage. It is important that you understand liquidation in crypto and how it works.

3. Use technical estimation to define price levels

It is best to fix your stop price at an asset’s support level or a resistance level. One great way you can define these levels is via technical analysis. 

For instance, you can make use of a buy-stop-limit order and place the stop price a bit above a critical resistance level to use a breakout to your advantage. Also, you can place a sell stop-limit order just below the support level. This is to ensure that you pull out before the market declines further.


Bottom Line 

At this point, you should already have an answer to the question, “What is Stop Limit Order?”. Basically, this type of order implements a trade when the market price hits the desired trigger price you have attained in the trade. It is a risk management tactic that helps to protect you from unexpected price changes. One thing you need to keep in mind that there’s no guarantee of execution. Soon after hitting your trigger price, the market may move very quickly. This leaves your limit order already open but not executed.

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Emmanuel Agwu

Feb 8, 2023

6 mins read

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