Advanced Trading: Stop Orders
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.
Example of a Stop Order
- If Bitcoin is trading at $10,000, a market order does not fully guarantee that a trader’s buy or sell price will be filled at $10,000. The trader could get a price higher or lower than $10,000, depending on the time the order filled. In cases of illiquidity or in times of extremely volatile Bitcoin prices, placing a market order may result in a fill price that is significantly different from $10,000.
- Using this example, imagine an investor bought Bitcoin for $10,000. The price of Bitcoin is now trading at $11,000. However, to limit any losses from a plunge in the price of Bitcoin in the future, or to lock in a gain the investor places a sell order at a stop price of $10,500. If an adverse event occurs causing Bitcoin to fall, the investor’s order will be triggered when prices drop to the $10,500 mark.
How to Place a Stop Order on NDAX
- Login to https://ndax.io/
- Once you log in you will be redirected to your dashboard
- Click TRADE on the left-hand side of the screen
- On the trade page, click BUY (Green button) or SELL (Red Button) on the right side of the screen
- the small GREY ARROW in the upper left corner of the screen to pick the CRYPTOCURRENCY/CAD pair.
- Click on STOP
- ENTER ORDER SIZE
- ENTER STOP PRICE (the specified price when the order will turn into a market or limit order)
- Click PLACE BUY/SELL ORDER
Stop Order Video Tutorial (Purchasing Cryptocurrency)
Stop Order Video Tutorial (Selling Cryptocurrency)