25.07.2024

How to use limit and stop orders when trading on a cryptocurrency exchange?

In cryptocurrency trading, the main tasks are considered to be minimizing losses and fixing profits. To do this, traders use special tools, which are usually called pending orders.

They can be divided into stop orders and limit orders.

They allow you to make a deal in an automatic mode when the market situation develops that suits the trader. Thus, you can not sit for hours at the monitor waiting for favorable conditions for the transaction, writes RBC Crypto.

What is a limit order?

A limit order always has an upper or lower price limit, explained Vitaly Kirpichev, director of development for the TradingView platform in Russia. According to him, such an order is used when a trader is ready to wait for the price he needs, taking the risk that such an order may not be executed.

“When you place a limit order: buy bitcoin at $ 50,000, it means that you are ready to buy a coin at a price no higher than $ 50,000. At what price you end up buying will depend on the market. That is, you can buy an asset either at $ 50 thousand, or below $ 50 thousand, or not at all , ”the expert explained.

A limit sell order works in a similar way, Kirpichev added. If you place a limit order to sell bitcoin at $ 60 thousand, then it will be triggered only in two cases: when the value of the coin reaches the specified mark, or when it exceeds it.

What is a stop order?

A stop order is also called a conditional order, that is, an order that is placed under a certain condition – if the price reaches a set level, Kirpichev notes. According to him, the instrument can be used to exit an already open position and take profit.

“For example, if we want to buy bitcoin at $ 50 thousand, and it is trading at $ 55 thousand, it will be enough to place a simple limit buy order. But if we want to sell the coin only when the price exceeds $ 60 thousand, then the $ 60 thousand limit order will no longer work, since it will be immediately executed on the current sell orders for $ 55 thousand. » – noted the director of development of the TradingView platform in Russia.

Stop orders are also used to limit losses, added Andrey Podolyan, CEO of Cryptorg.exchange. According to him, this tool is triggered if the price of an asset moves in the opposite direction from the desired one. By placing a stop order, the trader sets a loss, which he is ready to go, Podolyan noted.

Effective approach

By using a stop order, you can apply a break-even trading strategy, but for this you need to have a good understanding of the operation of trading terminals, emphasizes Podolyan.

As an example, the expert cited a situation in which a trader bought bitcoin for $ 50 thousand, and then the price of a digital coin reached $ 55 thousand. go into the red, even if bitcoin becomes cheaper.

“I often use this method of protecting my positions ,” added the CEO of Cryptorg.exchange.

In trading, discipline is very important, and if you have opened a position, you should always use stop orders, Vitaly Kirpichev recommends.

When are pending orders not needed?

Andrei Podolyan advises not to use pending orders only if there is confidence in the growth of a certain asset and its purchase takes place in order to gain profit in the long term. Vitaly Kirpichev adheres to the same opinion, but in any case he recommends answering the question of when to exit this position and under what conditions when opening a long-term position.

“There are different tactics in trading, someone works with stop orders, someone without, this does not mean that trading without stop orders cannot be earned. Long-term investors usually trade without this instrument, active traders use pending orders, this is a matter of tactics, ” Podolyan added.

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