In crypto trading, a stop-loss order is a type of order that is placed by a trader to limit the losses on a particular position. Essentially, a stop-loss order is an instruction to sell a cryptocurrency asset when it reaches a certain price level, known as the stop price.
For example, if a trader buys Bitcoin at $50,000, they may set a stop-loss order at $45,000. If the price of Bitcoin falls to $45,000, the stop-loss order will be triggered, and the trader’s position will be automatically sold at the current market price.
The purpose of a stop-loss order is to protect the trader’s investment by preventing them from suffering excessive losses if the price of the asset moves against them. While stop-loss orders can be a useful risk management tool, it’s important to remember that they are not foolproof and can be subject to market volatility and other factors that may cause them to be executed at a different price than intended.