Stop Orders
What is a Stop Order?
A stop order is a type of trade order that becomes a market order once a specified price is reached, known as the stop price. Unlike limit orders, which execute only at a predetermined price or better, stop orders trigger a trade when the market reaches the stop price, at which point the order becomes a regular market order that executes at the best available price. This feature allows traders to automate their trades based on market movements.
There are two main types of stop orders:
Stop-Loss Orders: Used to limit potential losses by selling an asset once it falls to a certain price.
Stop-Buy Orders: Used to enter a position or buy an asset once it rises to a specific price.
How Stop Orders Work
Stop-Loss Order (For Selling)
A stop-loss order is designed to minimise losses by automatically selling an asset once its price falls to a specified level. Example: If a trader owns Token A and wants to prevent a significant loss, they might set a stop-loss order at $50. If Token A’s price drops to $50, the stop order is triggered, converting it into a market order, and the asset is sold at the best available price.
Stop-Buy Order (For Buying)
A stop-buy order purchases an asset once its price reaches a certain level. This order type is often used when traders want to capitalise on upward momentum. Example: If Token B is trading at $40 but a trader believes it will continue rising once it hits $45, they can set a stop-buy order at $45. The stop order triggers when the price reaches $45, and Token B is bought at the market price.
Key Benefits of Stop Orders
Automated Trading: Traders don’t need to monitor the market constantly—once the stop price is reached, the trade is triggered automatically.
Risk Management: Stop-loss orders protect traders from large losses by selling when prices fall below a set threshold.
Capitalising on Price Trends: Stop-buy orders enable entry during upward momentum without constant monitoring.
Execution Speed: Once triggered, the order executes at the best available price, ideal for fast-moving markets.
Example of Stop Orders in Action
Stop-Loss Example: A trader owns 100 tokens of Token C, currently priced at $30. They set a stop-loss order at $25. If the price falls to $25, the tokens are sold at the next available market price, limiting further losses.
Stop-Buy Example: A trader watches Token D at $20 and believes it will rally once it breaks $25. They set a stop-buy order at $25. If the price hits $25, the tokens are bought automatically, allowing them to ride the momentum.
Stop Orders vs. Limit Orders
Stop Orders: Trigger a market order once the stop price is reached. Useful for protecting against losses or entering during momentum, but do not guarantee exact execution price.
Limit Orders: Execute only at a specified price or better. Guarantee execution price but may never fill if the market doesn’t reach the set price.
Potential Risks of Stop Orders
Price Slippage: The actual trade price may differ from the stop price in volatile or low-liquidity markets.
Gaps in Price: In fast-moving markets, the price may jump beyond the stop level before the order executes, leading to worse-than-expected outcomes.
How to Create a Stop-Loss Order
Choose Stop From the trading screen, choose "Stop" to start creating a stop order.
Specify the Sell Amount Enter the asset you want to sell and the amount. Example: Sell MIN tokens if the price drops further.
Set the Stop Price Define the price at which you want to sell. You can use predefined percentage options (e.g., 5%, 10%, 25%). Example: Sell if MIN drops 10% below the current price.
Set the Expiry Time Choose when the order should expire. If it doesn’t trigger in time, assets are returned to your wallet.
Place Order Click "Place order" to proceed.
Sign and Submit Sign the transaction in your wallet and submit it on-chain. The stop order will now execute automatically if conditions are met.
How to Create a Stop-Buy Order
A stop-buy order is designed to help traders enter a position during upward momentum. Instead of buying an asset immediately, you set a trigger price above the current market price. Once the stop price is reached, the order converts into a market order and executes at the best available price.
This strategy is commonly used when traders believe an asset will continue to rise once it breaks through a certain resistance level. Unlike a take profit order—which is used to sell and lock in gains—a stop-buy order is used to buy into strength.
Example
Suppose MIN is trading at 0.0469 ADA. You believe that if it breaks 0.0494 ADA, the trend will continue upward. You set a stop-buy order at 0.0494 ADA. Once the price reaches this level, the order executes, and you purchase MIN automatically at the best available market price.
Steps to Place a Stop-Buy Order
Choose Stop From the trading screen, select "Stop" as your order type.
Specify the Buy Amount Enter the asset you wish to purchase and the amount (e.g., buy MIN with ADA).
Set the Stop Price Define the trigger price at which the buy should occur. Example: Buy MIN when it reaches 0.0494 ADA.
Set Expiry Choose an expiry time for the order. If the price doesn’t hit your stop price before expiry, your ADA remains in your wallet.
Place Order and Sign Confirm the trade, sign in your wallet, and submit it on-chain. The order will execute automatically when conditions are met.
Stop-Buy vs. Take Profit
Stop-Buy Order: Enters a new position once the price rises to a chosen level.
Take Profit Order: Exits an existing position by selling once the price reaches a desired profit target.
Both can be used together as part of a risk/reward strategy:
Stop-Loss to protect downside
Take Profit to lock in gains
Stop-Buy to catch upward trends
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