How does "Stop Order" work?

[Koinci]

Hi,

Will the system sell it at whichever price point (Limit Price or Stop Price) is reached first?

Thank you in advance.

[1713269335]

1713269335

[1713269335]

1713269335

[DarkArmy]

Hi,

I am new to trading Bitcoin (I should say trading in general) and the terminology, and after reading a couple of articles and watching a couple of videos, I still don't have a clear idea how "Stop Order" works.

I will give an example from GDAX's interface and I will appreciate if you could tell me if I got it right:

Let's say I purchased 0.05 BTC when the BTC price was $5000. I surely want to sell it with a profit, but I also don't want to lose too much if the price goes down. On GDAX interface, I select STOP, then I select SELL. I enter 0.05 BTC as Amount, $5050 as Limit Price (under Advanced section), and enter $4950 as Stop Price, and place the sell order.

Is this how a Stop Order for selling is supposed to be done? Will the system sell it at whichever price point (Limit Price or Stop Price) is reached first?

Thank you in advance.

This should explain/confirm.

"For example, let's assume that you own 100 shares of Company XYZ stock, for which you have paid $10 per share. You are expecting the stock to hit $12 sometime in the next month, but you do not want to take a huge loss if the market turns the other way.

You direct your broker to set a stop order at $8.50. If the stock goes up, you will realize all of the benefits. If the stock goes down and touches $8.50, your broker will automatically place a market order to sell your shares.

It is important to note that when the stop order is triggered, it becomes a market order. You will not necessarily receive $8.50 per share; you will most likely receive a little more or a little less."

http://www.investinganswers.com/financial-dictionary/stock-market/stop-order-1216

So if it goes up to $5,050 it will sell, and if it falls to $4,950 it will set a market order.

[TheQuin]

It is important to note that when the stop order is triggered, it becomes a market order. You will not necessarily receive $8.50 per share; you will most likely receive a little more or a little less."

That is describing a 'stop market' order which is most commonly used. On some exchanges and trading platforms, it is also possible to use a 'stop limit' order. Here the order is still triggered in the same when the stop price trades but you can specify the limit price that it can be filled at (usually as an offset to the stop price). This can save slippage most of the time but does leave a possibility that in a very fast market price could go right through your stop without it getting filled.

[Koinci]

Thank you both for your input. Now, I just need to clearly understand the distinction between Stop Market order and Stop Limit order. Stop Market order looks much like a Limit order, only it deduces a fee as a Market order, if I got it right. So, why use it?

It looks it just got more complicated for me

[buwaytress]

Thank you both for your input. Now, I just need to clearly understand the distinction between Stop Market order and Stop Limit order. Stop Market order looks much like a Limit order, only it deduces a fee as a Market order, if I got it right. So, why use it?

It looks it just got more complicated for me

To answer your original question simply: yes, you got it right. That's GDAX way of putting it. It can differ across platforms. I'm more familiar with "stop loss" and "take profit" (abbreviated as SL and TP) but that's just a forex convention.

These are actually all called Stop Orders, where you set a stop price that is above or below current market values. When the coin reaches this stop price you set, your Stop Order essentially fills on the market. But as the others put, this is seldom the exact price you specify.

[Serpens66]

Thank you both for your input. Now, I just need to clearly understand the distinction between Stop Market order and Stop Limit order. Stop Market order looks much like a Limit order, only it deduces a fee as a Market order, if I got it right. So, why use it?

It looks it just got more complicated for me

Difference between "Stop Market" and "Stop Limit" is the same like difference between "Market Order" and "Limit Order".
"Market" always sells/buys at best possible price, even if the best possible price is horrible (sell ETH for few cents "flash crash").
"Limit" makes sure you buy/sell to best price, but at max/min your limit price, so you can make sure it won't sell your ETH for cents.

[Nonakryse]

I'll try to explain it with a following example. Let's say you buy a coin priced at 1000 dollars, that's the current market value of that coin. Now, let's assume that you want to minimize your loss by selling at a specific price (since you don't want to sell when the price reaches 1 dollar) which you'll decide yourself what it's going to be. So, you are willing to sell at maximum 800 dollars (incure a maximum of 200 dollars loss), so you put a stop-loss order at 800 dollars, what happens now, is that if the price reaches to 800 dollars - your position will directly liquidate itself, which means it will sell at the price and you don't risk anymore the price going lower, you've potentially saved yourself a lot of money, but you potential as well are going to lose a lot, if the trend reverses and start going up again (let's say the price went to 798 and jumped to 890 after) so you've lost this 90 dollars of profit that you could have made.