A stop order is an order to buy or sell once a cryptocurrency reaches a specific price point. Once the price point threshold has been reached, a stop order becomes a market order that executes at the best available price.
The disadvantage, like any market order, is that you cannot fully guarantee the exact price of the executed order, but you can ensure that it is executed once the price trigger has been met.
A buy-stop order is entered at a stop price above the current market price. A sell-stop order is entered at a stop price below the current market price. Stop orders can come in a variety of types: buy-stop orders, sell-stop orders, stop-market orders, and stop-limit orders.
One advantage for a trader using a stop order is that they do not have to actively monitor the market price of the asset, since stop orders are automatically triggered by the movement of an asset’s price. Another advantage of a stop order is that it does not cost anything to place a stop order. A trading fee is only charged when the stop order price is reached, converting the trade into a market or a limit order, and the trade is executed.
The major disadvantage of a stop order is that the price is not guaranteed. In markets where prices begin to fall dramatically, there is no guarantee that the selling price of a sell-stop order will be the same as the stop price. The selling and stop prices are likely to be different, often lower than expected. Another disadvantage of a stop order is that in highly volatile markets, sudden and unexpected changes to a cryptocurrency’s price can activate an order that a trader might not have anticipated.