Understanding Trailing limit sell, stop sell, and buy/sell limit order
Advanced traders always use different
trading order types rather than just a basic buy and sell market order. Buy and
sell orders at market price will usually ensure that your trade is occurring,
but it may also include slippage.
Slippage refers to the difference
between the expected price of a trade and a price at which trade is executed.
It may occur anytime but is most prevalent at the time of higher volatility
when market orders are used. Market prices change quickly, allowing slippage to
occur during a trade being occurred and when it’s completed.
To avoid such conditions, the best
crypto trading terminal like TrailingCrypto provide advanced order types to the
traders which allow them to specify buying and selling price in crypto
trading. These order types eliminate
slippage and ensure that the trade is executed at an exact price if and when
the market reaches that price during the specified time.
A variety of advanced orders are
available to traders to set trades with specific parameters. Each trading
platform will have its own set of offering of the trade order options. The most
common order types used in cryptocurrency market are market, limit, stop, stop
limit, and the trailing stop orders. Here we will discuss limit order to buy
and a stop order to sell along with its advanced order types.
Limit orders are the conditional
orders which mean that order will only be placed if the price of an asset
reaches to a certain level.
Buy/sell
limit order
Both buy and sell limit orders allow
traders to specify their own price rather than taking the market price at the
time order is executed. Using a limit order for buy allows a crypto trader to
specify the exact price they want to buy the crypto coins at. Usually, it is a
calculated entry point.
A limit order allows you to specify
the maximum or desired price at which you want to buy an asset and the minimum
price at which you want to sell. Sell limit order help traders to limit their
downside risks while buying or selling their stocks.
Stop sell
order
A stop sell order is used while selling a crypto asset. This order
type is much different than placing a limit order as it includes a stop price
that triggers the allowance of market order. These orders have a specified stop
price.
In this order type, a trader has to
specify a stop price to sell their order. If the crypto asset price moves to
the stop price, then a market order is triggered to sell an asset. Different
than limit orders, this order type involves some slippage since there will be a
marginal discrepancy between stop price and the following market price
execution.
A stop sell order is usually used to
limit losses and managing already accumulated profits.
Let’s understand it with an example:
Say, a trader has bought XYZ at $35
per coin but wishes to risk no more than $5 per share loss on this trade. He
places a stop sell order just below $30, say at $29.50. If the market price
falls to $29.50, then a sell stop order will be triggered, and XYZ stock is
sold at the next available price.
Stop limit
order
Stop limit order is a type of
conditional order which is executed if a certain condition is met. This
condition is that the order is executed only when the market reaches a certain
price limit. This certain price point is called the Trigger Price. Your order
will be executed between target price and the trigger price.
Target Price is the maximum price
that you are willing to pay/receive while buying/selling cryptocurrency.
Trigger price is the price point
which when meet releases your order in the open order book.
Traders use stop limit orders when
they are not actively monitoring the market, and the order helps trigger a buy
or sell order if the security reaches a specified point. Once the price is
attained, the order is triggered automatically.
Stop buy limit is used to buy a
crypto asset if the price hits to a specific point. It helps traders to control
the buying price of the crypto asset once they have determined an acceptable
maximum price. A stop price and limit price are set here. On the other side,
stop sell limit order is a conditional order where the trader sells an asset
when its price falls to a specific price, i.e. the stop price. A stop sell
order allows traders to sell the asset if the price decreases to the stop point
or below.
Since there are some risks with these
order types, the experienced traders use trailing orders to protect their gains
and cut the losses.
Trailing
stop limit order
A trailing stop limit order allows a
trader to specify a limit on the maximum possible loss, with setting a limit on
the maximum possible gain. A trailing
limit sell order moves with the market price and recalculates the stop
trigger price at a fixed point below the market price based on the user-defined
trailing amount.
As the market rises, both the stop
price and limit price rises by the trail amount and limit offset, but if the
market falls, the stop price remains unchanged. And, when the stop price is
hit, the limit order is submitted at the last calculated price.
Similarly, a buy trailing stop limit
order is the mirror image of Trailing limit sell order.
Let’s
understand Trailing limit sell order in depth:
Enter a
trailing limit sell order
Say you buy 100 coins of XYZ for
$66.34 and want to limit your loss. You set a trailing stop limit order with
amount 20 cents below the current market price of $61.90. Trailing amount is
the amount used to calculate the initial stop price, by which you want the
limit price to trail the stop price.
To do this, you have to create a sell
order, click Trail limit and enter 0.20 in the trailing amount field. In this
order type, you specify a stop price and either a limit price or a limit
offset. Here we will set limit offset. You enter a stop price of $61.70 and a
limit offset of $0.10.
Market rises
As soon as you submit your order, the
price of the market starts to rise and hits $62. The stop price has adjusted
accordingly and is at $61.80 and your limit price will also be adjusted automatically
and is calculated as$61.70.
Market falls
Suddenly the market falls and XYZ
drops to $61.90. Here your stop price and limit price will remain unchanged.
Market price
touches the stop point, order is triggered
If the price of XYZ continues to drop
and touches your stop price i.e. $61.80. A limit order to sell the XYZ for 100
coins at $61.70 is submitted to fill the calculated limit price better.
Conclusion
Ordinary stop limit orders only
specify the amount of loss you define while placing the order. But on the other
side, trailing limit orders automatically update your order to limit the
maximum loss possible and turn the whole trade profitable.
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