What is Stoploss? A Detailed Guide to Immediate Trade Stop-Loss Orders

What is stoploss and why is it considered the “savior” for most traders? Simply put, a stoploss (or SL) is a risk management tool that automatically sells your asset when the price drops to a predetermined level you set in advance. It’s like an “insurance” for your wallet, helping you avoid significant losses that you cannot tolerate.

Alongside stoploss, there is also take profit (TP), a reverse tool that automatically sells when the price reaches your profit target. Both tools are fundamental skills that every trader needs to master to protect their capital.

Understanding Stoploss - Essential Risk Management Tool

What is a stoploss? If you buy a cryptocurrency at a certain price and fear that the price might go down, you can set a lower stoploss level. When the price hits that level, the sell order is automatically triggered, helping you minimize losses.

Simple example: You buy BTC at 50,000 USDT. You worry that if the price drops to 45,000 USDT, you will lose too much, so you set a stoploss order at 45,000 USDT. If the price indeed drops to that level, the system will automatically sell your BTC at the best available price, preventing larger losses.

Why is stoploss important? The cryptocurrency market is highly volatile. Prices can surge or plummet within minutes without your reaction. Without a risk management plan, impulsive decisions can cost you thousands of dollars. Stoploss helps you avoid panic and the need to watch the screen all day and night.

Stoploss, Take Profit, and Other Order Types - Clear Differentiation

When starting trading, you’ll encounter three different order types: Stoploss/Take Profit (TP/SL), OCO (One-Cancels-the-Other), and Conditional Orders. While all relate to protecting profits and limiting risks, they differ significantly in how they utilize your assets.

Stoploss/Take Profit Orders: When you place a stoploss or take profit order, your assets are “locked” immediately, even before the order is triggered. This means you cannot use those assets for other trades until the order is completed (executed or canceled).

OCO Orders: Slightly different, this order type uses only part of your margin—corresponding to the “winning” side of the order. If you set a TP/SL buy order via OCO, only the portion of margin related to the order that gets triggered will be used. This approach is more efficient because it doesn’t “lock” all your assets.

Conditional Orders: The most nuanced. When you place a conditional order, your assets are NOT used until the price reaches your specified trigger level. Only then is the order activated, and the assets are committed.

How to Place Stoploss/Take Profit Orders on the Platform

Method 1: Set a Stoploss Directly from the Order Area

The simplest way is to place a stoploss order directly in the trading interface. You need to specify three main factors:

1. Activation Price: The price at which the order will be triggered when the market reaches it.

2. Order Price: The price at which you want to buy/sell. It can differ from the activation price.

3. Quantity: How much of the asset you want to buy/sell.

Once set, the assets are immediately allocated. When the market price hits the activation price, one of two things will happen:

If you choose a Market Order: The order will be filled immediately at the best available market price. Market orders follow the IOC (Immediately or Cancel) principle, meaning if there isn’t enough liquidity, the unfilled part will be canceled automatically.

If you choose a Limit Order: The order will be placed in the order book and wait until the price reaches your specified level. If the bid/ask is better than your limit price, the order will be executed at the better price.

Method 2: Set Take Profit/Stoploss Along with a Limit Order

A more advanced approach is to place a limit buy/sell order and simultaneously set TP/SL orders that will automatically trigger once your limit order is executed.

How it works: You place a limit buy BTC at 40,000 USDT. At the same time, you set:

• Take Profit: Trigger at 50,000 USDT, sell at 50,500 USDT
• Stoploss: Trigger at 30,000 USDT, sell market

When your limit buy order executes (BTC hits 40,000), the TP/SL orders are automatically placed. Now, if the price rises to 50,000, TP triggers. If it drops to 30,000, SL triggers. Only one of the two orders will execute; the other will be canceled.

Real-Life Scenarios - When Does Stoploss Work Effectively?

Let’s look at some specific situations to understand how stoploss functions in practice.

Scenario 1: Market Sell Stoploss Order

Suppose BTC is currently at 20,000 USDT. You set:

• Activation Price: 19,000 USDT
• Order Type: Market (sell immediately)

When the price hits 19,000 USDT, the stoploss is triggered, and your BTC is sold at the best available market price at that moment (possibly around 19,000 or slightly lower). This helps you exit the position during a decline, even if you don’t get the exact desired price.

Scenario 2: Limit Take Profit Order

Suppose you bought BTC at 40,000 USDT and set:

• Activation Price: 50,000 USDT
• Order Price: 50,200 USDT

When the price reaches 50,000 USDT, the take profit is triggered. A limit sell order at 50,200 USDT is placed. Now, you just wait for the price to reach 50,200. If the price goes higher, you have a chance to sell at an even better price.

Scenario 3: Both Take Profit and Stoploss Active

Trader A buys BTC at 40,000 USDT with a plan:

• Take Profit: Trigger at 50,000, limit sell at 50,500
• Stoploss: Trigger at 30,000, market sell

Situation A: Price rises to 50,000 USDT

• TP triggers, a limit sell at 50,500 is placed
• SL is automatically canceled (since TP activated)
• You wait for the price to reach 50,500 to take profit

Situation B: Price drops to 30,000 USDT

• SL triggers, BTC is sold immediately at market price
• TP is automatically canceled (since SL activated)
• You exit the position, minimizing losses

Important Notes When Using Stoploss

Stoploss is a powerful tool, but it must be used carefully. Here are key points to remember:

1. Price Limits for Orders: There are valid price limits for TP/SL orders. For example, if the limit price for BTC/USDT is within 3%, the order’s limit price cannot exceed 103% of the activation price. This protects you from unreasonable orders.

2. Assets Are Locked Immediately: When you set TP/SL orders, your assets are used right away, even before the order is triggered. This means you cannot use those assets for other trades until the order is completed.

3. Limit Orders Are Not Guaranteed: Using limit orders for TP/SL does not guarantee execution at your desired price. It depends on market liquidity and price movements.

4. Be Aware of TP/SL Orders with Limit Orders: When you place a limit order with attached TP/SL, note that the TP/SL orders will be canceled immediately once the limit order is triggered, even if it’s not fully filled. In some cases, if the price recovers, you might miss out on better prices.

5. Minimum Order Requirements: The trade amount or value must meet minimum requirements. If not, the TP/SL order may not be placed or executed upon trigger.

6. Differences Between Limit and Market Orders: Limit and market TP/SL orders have different maximum size limits. If you try to set a limit order exceeding the maximum allowed for market orders, your request will be rejected.

What is stoploss? It’s an indispensable tool for safe and planned trading. By using stoploss intelligently, you protect your capital from unnecessary losses and increase your chances of long-term success. Start using stoploss now and improve your risk management skills.