Stop-loss in trading is a simple crypto trading tool that is designed to limit the maximum losses of trade and liquidate assets once the market prices reach the specific value and not less than the predefined value. Once into cryptocurrency trading, you should be well aware of the term “stop-loss”, and know every detail about it before entering into a trade. It is necessary that every trade we get into requires to know how and when to get out of it. Whether you are making a profit or loss, a well clear stop loss level will help you cut your losses at any point in time. Set your stop loss at the cost of your coin, like if you are having a coin worth a certain amount, then set that amount as a minimum point you are willing to trade your coin.
What is a stop-loss order?
Also known as a stop order, the stop loss feature of a top crypto trading platform is a computer-generated advanced trading tool provided by the platform in order to know when to execute a trade for a given fund at a specified price level. The interesting thing about stop-loss is that it differs from any conventional market order and allows the trader to limit the price of the digital assets. It is an automatic order that can be set to buy or sell cryptocurrencies only after its price reaches a specified amount. It is also known as stop price, which makes sure that your order is executed automatically helping you save on your deals and prevent losses.
It is suggested to put in stop losses irrespective of what you are trading on the platform as the crypto market being highly volatile it is hard to determine how much may the prices fall. Most importantly the cryptocurrency market reacts quite violently opposite to new market flows, and if you do not incorporate or use the stop loss tool then there are chances your losses may escalate higher.
How traders can be benefitted from stop loss?
Now, let’s get back to the most important of all things on how a crypto trader gets benefitted by using stop losses in their trades. It can be hard to accentuate the importance of stop losses for a trader, but there are many reasons on how traders are benefitted and it is so important for them to consider while trading on the best crypto exchange –
- Using stop losses gives you an overall idea about how much of your hard-earned capital is at risk. You can immediately act upon by measuring any of your potential losses on all your open trades.
- Being a trader you will have an objective to protect your capital from any risks involved as you are always trading with a finite amount.
- Stop-loss can be most beneficial for the traders trading with limited or a predefined amount of capital.
- The crypto market being the most volatile, stop loss can be the best tool for you to prevent any downsizing risks while trading.
- The best advantage you get from stop losses is that you are more enabled to churn your capitals and keep compounding your returns on a regular basis.
- Stop losses can help you avoid different situations when your trade holds no value and blocks your capital in the process.
Stop-loss in trading cannot always be deemed as beneficial for the traders on the cryptocurrency exchange platforms. Apart from having advantages, stop losses may not always be beneficial for you. Let’s check some of the advantages and disadvantages of stop loss –
- It helps in monitoring your top deals.
- It lets you better control your trading account.
- It can be executed at any time automatically.
- It is easy to implement.
- It allows you to make the right decisions on the total amount you are putting at risk.
- It prevents excessive losses.
- Stop losses may lead your deals to close before the estimated or stipulated time frame.
- You need to set or decide the rates, which can be tricky at times according to market volatility.
Looking apart from the disadvantages that may or may not happen, stop-loss is only designed to minimize risks caused due to market fluctuations. Before opting for stop-loss you need to be well aware of the risk-reward ratio of a top crypto trading platform. However, stop-loss is a simple tool and you are the only one to decide or opt for it as its success will always depend on your market analysis.