14 Apr 2024
How the “stop-limit” deal mechanism works on the cryptocurrency exchange
Finance

How the “stop-limit” deal mechanism works on the cryptocurrency exchange 

The “stop-limit” deal is one of the most popular tools on the cryptocurrency exchange. It allows traders to protect their investments from risks and profit from price fluctuations. You can test the exchange’s functionality on the Binance demo account.

What is a “stop-limit” deal

A “stop-limit” deal is a two-stage order to buy or sell cryptocurrency. It consists of two parts: “stop price” and “limit price”. The “stop-limit” deal is executed only if the price reaches the set “stop price” level. After that, the order to buy or sell is triggered at the set “limit price”.

How the “stop-limit” deal mechanism works

Let’s say you want to buy bitcoin, but you don’t want to buy it at the current market price, which may be too high. You can use a “stop-limit” deal to protect your investment and buy bitcoin at a more favorable price.

You set the “stop price” at a level that you consider appropriate, for example, $50,000. When the bitcoin price reaches this level, the order to buy is triggered at the “limit price” you set, for example, $49,500. This means that you will buy bitcoin at a price of $49,500, not at the current market price.

Similarly, you can use a “stop-limit” deal to sell cryptocurrency. You set the “stop price” at a level that you consider appropriate, for example, $60,000. When the price reaches this level, the order to sell is triggered at the “limit price” you set, for example, $60,500. This means that you will sell the cryptocurrency at a price of $60,500, not at the current market price. You can also make money on price movements on binary options, for example at The Pocket Option broker.

Advantages of a “stop-limit” deal

The “stop-limit” deal has several advantages that make it a popular tool among traders on the cryptocurrency exchange.

  1. Investment protection: the “stop-limit” deal allows you to protect your investment from risks. You can set the “stop price” at a level you consider appropriate to limit your losses.
  2. Profitability: the “stop-limit” deal allows you to profit from price fluctuations. You can set the “stop price” at a level you consider appropriate to profit from rising prices.
  3. Flexibility: the “stop-limit” deal provides traders with flexibility in managing their investments. You can set the “stop price” and “limit price” according to your needs and desires.

Advantages of a "stop-limit" deal

Risks of a “stop-limit” deal

The “stop-limit” deal is not risk-free. It also has some risks that need to be taken into account.

  1. Slippage risk: when the price of cryptocurrency changes sharply, there may be a gap between the “stop price” you set and the actual price. This may result in your order not being executed at the set “limit price”.
  2. Order non-execution risk: in case of low liquidity on the exchange, your order may not be executed even if the price reaches the “stop price” you set.

Conclusion

The “stop-limit” deal is an important tool on the cryptocurrency exchange that allows traders to protect their investments and profit from price fluctuations. However, before using this tool, it is necessary to thoroughly study its principles of operation and the risks associated with it.

Related posts