Sell Stop Order: All You Need to Know
Five of the most common trading order options include market, limit, stop, stop limit, and trailing stop orders. The more advanced a trader becomes, the more trade order entries they will use beside the most basic ones – buy and sell market orders.
In this article, we’ll be discussing the sell stop order: what is it and how do I use it?
Sell Stop Order: The Definition
A sell stop order is an order used when selling. This order type is placed below the current market price. Thus, the order gets triggered if the price reaches that level.
A stop price is always specified for sell stop orders. This means that a trader would specify a stop price to sell. If the market price moves to the stop price, the sell stop order is triggered. Should that happen, the sell stop order becomes a market order to be executed at the current market price.
A sell stop order is sometimes also referred to as a stop-loss order as it can be used to either help protect unrealized gains or minimize losses.
Sell Stop Order: A Practical Example
Examples always work better than just reading, right? So here’s one:
A crypto trader has bought $1,000 worth of bitcoin (BTC), but wishes to risk no more than $100 loss on the trade. They place a sell stop order at $900.
If the market price falls to $900, then the sell stop order is triggered, and the trader’s coins are sold at the available market price.
Why You Should Use Sell Stop Orders
We know for fact that a sell stop order makes your life as a trader easier. By placing a sell stop order, you don’t have to be constantly watching the price, chasing it to avoid potential serious breakdowns.
As a result, trading becomes a much less stressful experience. Less stress reduces the emotional attachment to each trade – more success!
Related Potential Risks
Using sell stop orders doesn’t guarantee you profitable trades as stop orders aren’t without potential risks. Let us explain.
The price may go down in what is called a false breakdown. This means that instead of plummeting further, the price goes back up – just like that. However, your sell stop order has already been triggered, and the market order will be executed at the next available market price.
It’s worth noting that the potential risks are higher during the times of extraordinary market volatility.
Sell stop orders are shields that can help protect you against unwanted losses, but, at the same time, they may prevent you from winning big – occasionally.
More About Stop Orders
Our virtual help center provides in-depth answers to most crypto-related FAQs.
Finally, you may also find our blog post How Does a Crypto Exchange Work? interesting.
CoinMetro’s Demo Platform
Now that you’re familiar with sell stop orders, you may want to practice – without risk. We’ve got a solution for you!
CoinMetro’s demo platform is always available for that. On a demo platform, you will be given some virtual funds to play with. Feel free to virtually try our exchange before signing up to a real account.
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