Stop-Loss & Stop-Limit Order: Which One is Better?

No one can deny that loss is a part of a trade. You can apply as many strategies as you want, go for the best trading market or a promising investment option, but it will happen with almost every trade. That doesn’t mean you should erase the thought of making any investments.

You would have to adjust to the circumstances and accept the truth. Along with that, you should find ways to overcome the loss that you have encountered.

Investors and traders use two methods to counter their losses in the trading world: Stop-Loss and Stop-Limit Orders. There is a little difference between the two, which we learn about further in the article, but both have benefited traders.

You can set a limit to your trade and have an estimate of the loss you are about to encounter. That way, your losses won’t interrupt your typical budget, and you will have the chance to continue your investment journey.

Stop-Loss Order

It is further divided into two categories:

  1. Sell Stop Orders

This method is used to safeguard long-position investments. When the sell order price of the marketplace decreases below a particular level, it automatically triggers the said market. This strategy works on the hypothesis that if the cost of an asset reaches a value this low, it will continue to fall and cannot be recovered. The loss is concluded by selling at the current price rate.

  1. Buy Stop Orders

The concept of both strategies is almost the same, but they are essential for short-term trades or investments. If the market price rises above the threshold of the limit you have set, the order will trigger. 

Stop-Limit Orders

As the name explains, stop-limit orders require a price limit for their execution. It is also classified into two types: stop-price, which converts the existing order into a sell price, and limitation price.

The trading order is converted into a limit order that will process in the case of reaching the price limit or in a better condition. In the case of market turbulence, the charge isn’t guaranteed to be filled.

A stop-limit order is best for those conditions where the price of the stock or any other financial asset has decreased below the price limit. Still, the trader is unwilling to sell at the current price rates and has chosen to wait for the stock prices to rise and reach the same level as before.

Stop loss

What Strategy Should You Use?

If you choose stop-loss orders, you will surely get execution, but market turbulence may affect the process. If you go for stop-limit orders, you will get a limit on the price, but there is no surety of execution.

An investment in a volatile stock or cryptocurrency that has abrupt price changes requires a stop limit as it ensures the price. If the trade doesn’t yield any result, the investor has to wait a bit, and they will get their desired price.

If the investment is for a company or a business, then a stop-loss order would be effective because it will help in the long term. Traders or investors could cut their losses and accept their assets trade on the current market price.

Final Words

If you are interested in cryptocurrency trading but doubt the methods or want to go for a trial run, choose the app, as it simulates your trades and helps you estimate the loss on your investment. 

No matter what strategy you use, ensure that it fits your investment option and current market trends, as it is necessary to keep those in check.

About the author

Brent Dixon is the owner of E-Crypto News and an early adopter of cryptocurrencies. He is a Book editor- that has edited numerous books on Cryptocurrencies. He has been a writer for more than 30 years. Covering everything from Jazz Music to Blockchain Technology. He currently lives with his wife on Miami Beach, Fl.

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