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What are 'Stop' orders?
These are orders that allow users to buy or sell once the market reaches a specified price known as 'Stop Price'. These type of orders help users to protect their profits, to limit their losses or in other cases, to initiate new orders. In Bitso, there are two types of 'Stop' orders: Stop-Loss and Stop-Limit.
What is a Stop-Loss order?
It is a type of 'Stop' order whereby the trader selects a 'Stop Price' and the amount of the trade to be executed.
How does a Stop-Loss order work?
When the chosen market 'Last Price' matches a 'Stop Price' chosen by the trader, the amount specified in the order will be purchased or sold through a market order.
It is important to note that the defined 'Stop' price in this type or order only serves to activate it and that afterwards it will be executed as a market order, this indicates that the order will not necessarily will be purchased or sold exactly at the 'Stop Price'.
Such order may not necessarily be executed at the 'Stop Price' for the following reasons:
- Given that the order is carried out by means of a market order, the prices in the Order Book may change in a matter of milliseconds.
- If there is not enough liquidity with respect to the order’s size, the order will be carried out in parts. The best prices in the Order Book will be taken into account, until the order is completed.
What is a Stop-Limit order?
Stop-Limit is a type of order to purchase or sell currency, which combines the features of Stop-Loss and Stop-Limit. In this type of order, the user chooses a 'Stop Price', the amount of the trade to be executed and a 'Limit Price', the price at which a Stop Limit order is to be placed.
How does a Stop-Limit order work?
When the chosen market 'Last Price' matches a 'Stop Price' chosen by the trader, the amount specified in the order will be placed in the Order Book as a limit order at the price chosen as 'Limit Price'. Since it is a limit order, it may be possible that this order will never be executed or that this order will be partially executed.
The exact mechanism of a stop order may vary between brokers and platforms.
Stop Price: These are orders that allow users to buy or sell when the market reaches a specific price.
Last Price: This refers to the last price at which the last trade in this market was executed.
Order Book: This refers to the Order Book, on which all the limited orders are created and are pending execution.
Limit Price: It refers to the chosen price for a position to be purchased or sold, upon the execution of a Stop-Limit order.