Stop orders, which are orders to buy or sell a security once it reaches a certain price, can help bitcoin investors lock in gains or limit losses.
These orders can make it easier for you to meet your investment objectives by automating trades and can be thought of as insurance to help increase your chances of buying or selling at the exact price you want.
For example, you can use a stop order to buy bitcoin once it rises to a predetermined price. Alternatively, one of these orders can sell the digital currency when its price falls to a certain level.
By setting up automated transactions, stop orders can take emotions out of the equation, a feature that can prove highly beneficial during times of market turmoil or irrational exuberance. Keeping your emotions under control is crucial to succeed as a trader over the long-term.
Kinds of Stop Orders
One major distinction you should know is the difference between stop-market orders and stop-limit orders.
In the case of the first, a market order is entered when a security reaches a specific price.
For example, if bitcoin is trading at $2,000 and you place a buy-stop market order for $2,100, it will automatically execute a market order which will purchase the digital currency at the best possible price, when bitcoin reaches $2,100.
However, if bitcoin is currently valued at $2,000 and you place a sell-stop market order at $1,900, the order will sell the digital currency at the best available price when it falls to this level.
Limit orders, on the other hand, are designed to set a maximum price for what an investor is willing to pay when buying or a minimum price the investor will accept when selling.
For example, suppose that bitcoin is currently trading at $2,000, and it has been trading close to that level for several sessions. If it breaks out of its current trading range and starts climbing, you want to purchase it to benefit from the rally. Continue reading…