If you want to start actively trading rather than HODL, you will likely need to use more than market orders. A stop-limit order gives you more control and flexibility. The concept can be confusing for beginners, so let's first look at the key differences between limit, stop-loss, and stop-limit order.
1. Types of Stop-Orders
Limit orders, stop-loss orders, and stop-limit orders are some of the most common order types.
Note: Stop orders would check funds when triggered. So on the spot, maybe failed due to insufficient funds.
- Limit orders - allow you to set a range of prices that you are happy to trade at.
When you set a limit order, you choose a maximum purchase price or minimum sale price. Your exchange will automatically attempt to fill the order when the market price meets or is better than your limit price. These orders are useful when you have a target entry or exit price and don’t mind waiting for the market to meet your conditions.
Typically, traders place sell limit orders above the current market price and buy limit orders below the current market price. If you place a limit order at the current market price, it will likely be executed in a few seconds (unless it’s a low-liquidity market).
For example, if the market price of WOO is $0.52 (USDT), you could set a buy limit order at $0.51 to purchase WOO as soon as the price hits $0.51 or lower. You might also place a sell limit order at $0.53, meaning that the exchange will sell your WOO if the price goes to $0.53 or higher.
- Stop order - sets a stop price that triggers a market order,
- Stop-limit order - combines aspects of the two:
As mentioned, a stop-limit order combines a stop trigger and a limit order. The stop order adds a trigger price for the exchange to place your limit order. Let's see how it works.
2. How does a stop-limit order work?
The best way to understand a stop-limit order is to break it into parts. The stop price acts as a trigger to place a limit order. When the market reaches the stop price, it automatically creates a limit order with a custom price (limit price).
Although the stop and limit prices can be the same, this isn’t a requirement. It would be safer for you to set the stop price (trigger price) a bit higher than the limit price for sell orders. For buy orders, you can set the stop price a bit lower than the limit price. This increases the chances of your limit order filling after it triggers.
3. How to place stop-limit orders on WOO X?
Let’s say you just bought 100 WOO at $0.5278 (USDT) because you believe the price will begin to rise soon.
In this situation, you may want to set a stop-limit sell order to alleviate your losses if your assumption is wrong and the price starts to drop. To do that, log in to your WOO X account and go to the WOO/USDT market. Then click on the [Stop-limit] tab and set the trigger and limit price, along with the amount of WOO to be sold.
If you believe that $0.4174 is a reliable support level, you may set a stop-limit order just below this price (in case it doesn’t hold). In this example, we will place a stop-limit order for 1000 WOO with the stop price at $0.4036 and the limit price at $0.3994. Let’s go through this step-by-step.
After placing by clicking [Sell / Short] your stop-limit order, you will see a confirmation message. You can also scroll left to see and manage your open orders.
Note that the stop-limit order will only execute if and when the stop price is reached. This means the limit order will only be filled if the market price reaches your limit price or better. If your limit order is triggered (by the stop price), but the market price doesn’t reach or is better than the price you set, the limit order will remain open.
Sometimes you might be in a situation where the price drops too fast, and your stop-limit order is passed over without being filled. In this case, you may need to appeal to market orders to quickly get out of the trade.
4. How does stop order (Stop Loss) work?
A stop order is an order to buy or sell crypto at the market price once the asset has traded at or through a specified price (the “stop price”). If it reaches the stop price, the order becomes a market order and is filled at the next available market price. If the crypto fails to reach the stop price, the order is not executed.
A stop order may be appropriate in these scenarios:
- The traded asset has risen and you want to attempt to protect your gains in case it reverses
- When you want to buy something as it breaks out above a certain level, believing that it will continue to rise
- A sell stop order is sometimes referred to as a “stop-loss” order because it can be used to help protect an unrealized gain or seek to minimize a loss. A sell stop order is entered at a stop price below the current market price; if the crypto drops to the stop price (or trades below it), the stop order to sell is triggered and becomes a market order. This sell stop order is not guaranteed to execute near your stop price.
A stop order may also be used to buy. A buy stop order is entered at a stop price above the current market price (in essence “stopping” the crypto from getting away from you as it rises).
Let’s see it as an example, but look at the potential impacts of using a stop order to buy and a stop order to sell - with the stop prices.
The stop order to sell would trigger when the price hits $37780 (or below) and would be executed as a market order at the current price. So, if the asset were to fall further after hitting the stop price, it’s possible that the order could be executed at a price that’s lower than the stop price. Conversely, for the stop order to buy, once the stop price of $39250 is reached, the order could be executed at a higher price.