Stop loss vs. stop limit is a concept that is majorly used by crypto traders. Trading cryptocurrency is another form that investors can acquire crypto in the market. Trading cryptocurrency however has major concern since the market is volatile and no trader will wish to lose their funds while trading. Therefore, there are various terms that traders use to curb losses while trading; stop loss vs. stop limit. What are the two terms and how are they used by traders to ensure that they do not incur losses while trading crypto?
Stop loss vs. stop limit are two terms that are commonly used by investors and traders to limit their losses. In this article, we will major on what stop loss and stop limit are, how they help investors from incurring losses and under which circumstances are they used.
Stop Loss vs. Stop Limit
Stop loss vs. stop limit are used by traders when trading cryptocurrency in order to increase profits and reduce losses which may incur during trade. So, what is the difference between stop loss vs. stop limit?
Stop loss is a common trade execution that encourages traders to to minimize the likely loss on a trade by positioning a fixed price at which the execution will be sold automatically once the price is below the price or the price falls at the price. Upon reaching the stop loss limit, the market order is executed automatically at the most conducive price. Stop loss allows crypto traders to manage their assets and the likely risks they might encounter.
Stop limit on the other hand is a type of crypto order that integrates the stop loss and limit order to execute a trade. So how does the stop limit execute itself? First, you are required to set a stop-loss where your price limits will be activated once your market price reaches that particular limit. From there traders will set their stop limit at the level you want the limit to be triggered once the price is reached. But if the price does not reach the stop limit, the order will not be executed.
Stop limit vs. stop loss are used by traders to eliminate market jeopardy during trading activities, if a trader does not include the stop limit vs. stop loss in their trading activity, then the loss will be friendly to his portfolio. Moreover, the cryptocurrency market is volatile, therefore, the utilization of stop loss vs. stop limit is necessary. Besides, if you are in the market and a power outage occurs, it will help traders to reduce losses.
Pros and Cons of Stop Loss vs. Stop Limit
Pros of Stop Loss
Losses are limited: Stop loss is essential to traders since it helps traders eliminate potential higher risk. They are mainly useful especially when the crypto market is changing rapidly, since the crypto market is volatile, by using stop loss traders are significantly limited in losses.
Automated process: Through stop loss, traders are not necessarily required to monitor how the market is moving, this saves time and stress. Once the stop loss limit is hit by the price, the market will automatically be executed.
Risk management: managing your assets is the first lesson that beginners in trading acquire, through stop loss traders ascertain that their assets will be significantly managed, by setting a stop loss you will not lose all your assets.
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Emotion management: Moreover stop loss ensures that traders’ and investors’ emotions are controlled especially when the market price is against them. By executing stop loss in the market, investors are given a strategy which helps traders stop holding their crypto asset for long due to fear of losses.
Cons of Stop Loss
Physiological impact: Traders might sometimes make poor decisions, for instance, beginners may end up setting stop loss closer to the level they had just bought or sold their crypto asset leading to premature stop losses.
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Complexity: using stop loss order might be a complex idea for newbies in the cryptocurrency market, understanding the concept and utilizing stop loss might be hard and lead to market mistakes.
Volatility: When the market becomes more volatile, stop loss might end up messing with your trades. The unpredictable market fluctuation might lead to an unwanted exit from the
market.
Pros and Cons of Stop Limit
Pros
Trading strategy: Exercising the use of a stop limit, traders are able to enter a position at a price they are willing leading to a win-win. Moreover, a stop limit is also utilized when traders are exiting a desired position after various conditions are met.
Price control: stop limit order ensures that investors and traders specify at the exact price they are willing to purchase and sell their crypto assets. This strategy ensures that they can control their price execution.
Limit losses and maximize profits: The main function of a stop limit just like a stop loss is to increase investor’s profits and ensure that their losses are minimized to the best.
Cons
Complexity: understanding the stop limit is crucial, especially to beginners, additionally utilizing and managing the stop limit is complex. Unfortunately, most traders are usually confused especially non-experienced traders.
No Guarantee execution: let us say that your crypto trading asset has not reached the required price level, then your stop limit order will not be executed. Therefore there is no guarantee that your order will be executed not unless it reaches the price level.
Stop Limit vs. Stop Loss. Which is Better in Trading Crypto?
Trading cryptocurrency is a tricky situation because of its volatile nature, making losses is not anyone’s dream but rather everybody’s nightmare. Coming up with stop limit vs. stop loss order will lead to investor minimizing their losses. Although stop limit is critical and complex to use, stop loss on the other hand will not be favorable when the market is volatile since it will exit you imposition that the trader never intended to. therefore, by combining stop loss vs. stop limit technique traders ensures a profitable trade.
Considering stop loss vs. stop limit is determined by a trader’s preference. A number of traders emphasize both trading strategies to facilitate better outcomes. Choosing the better order for a trader is determined by the objective and circumstances a trader is in.
Conclusions
Stop loss vs. stop limit are both used by traders to safeguard their cryptocurrency assets due to the high volatility occurring in the crypto market. By utilizing stop loss vs. stop limit, traders limit the risk associated with their crypto losses. Stop loss is exercised by traders to limit potential risk while limit risk ensures traders that their crypto is safeguarded against unexpected market price changes.
