Also known as a limit order, a stop-limit order is an order limit price that is set when a specific price has been reached. Once a limit order is set on the cryptocurrency trading site, the exchange can be executed when the market price has reached or matched your limit price. In order to mitigate risks, it is used in the form of a conditional trade having a set of timeframes and combining the features of stop order with that of a limit order. After reaching the stop price, the stop-limit order becomes a limit order which helps in buying or selling at a limited price or even more. Using this feature the traders are able to control the trade prices. However, if your trade asset does not reach the specified price, then the order limit is not filled because of which you may lose out on a trading opportunity.
The stop order limit is very precise and condition-related which implies that the limit may either stay on the buying or the selling side in a stock transaction. Moreover, in the case of buying a stock, the limit orders work well, but it may not work well when you want to sell it. There are certain points to be remembered to trade coin and apply it on the transaction process-
- You have to keep in mind that it does not guarantee to be filled at all times.
- You need to make sure that the order is filled properly or is much better than a specific price point.
- The execution price is controlled by the limit order, and the fast-changing market conditions may lead to miss better trading opportunities as well.
- In order to prevent huge losses, this feature can be used in conjunction with stop order feature as well.
The working principle of a stop order limit is quite simple and can be used to buy or sell a stock or currency. Let’s take an example of a trader who wants to buy a stock having a price limit of $13.50, he/she can only buy the stock at a lower price. However, if the trader wants to sell the stock with a limit of $13.50, then he/she will not be able to sell the stock until the price is $13.50 or more than it. Moreover, limit orders can be left open to trade if it has a valid expiry date.