Questions » What is a stop-loss order?

What is a stop-loss order?

A stop-loss order is an order placed by a crypto trader to sell a cryptocurrency asset at a predetermined price level to limit potential losses. It is a risk management tool that helps traders minimize their losses if the market moves against their position.

In practical terms, a stop-loss order is set up by specifying a stop price for a particular cryptocurrency asset. This stop price is usually set below the current market price of the asset, but it can also be set above the current market price for short positions. When the market price of the asset reaches the stop price, the stop-loss order is triggered, and the asset is sold automatically.

Stop-loss orders are a useful tool for traders who want to manage their risks and protect their capital. They can help traders limit their losses in case the market moves against their position, while also allowing them to benefit from potential profits if the market moves in their favor.

It’s important to note that stop-loss orders are not foolproof, and there is always a risk of slippage or the market gapping over the stop price. Therefore, it’s crucial for traders to carefully consider their risk management strategy and use stop-loss orders in conjunction with other risk management tools, such as position sizing and diversification.