Stop-Loss

A stop-loss is an automatic instruction to close your trading position at a chosen price. Its purpose is to help limit a loss.

What is a stop-loss?

You set a stop price on a trading platform. When the price tracked by the platform reaches that level, the platform activates your order. The price a platform uses for this can vary by service or product.

If you bought a cryptocurrency, a sell stop is usually below the current price. For a short position, where you’re betting on a price drop, a buy stop may instead be above the current price.

The stop price is only the point when the order starts. With a stop-market order, the asset is then immediately sold or bought at the available price. With a stop-limit order, you also set a price limit. If there’s no buyer or seller within that limit, the order may not be filled.

An example of a stop-loss

Someone buys one cryptocurrency for €100 and sets a stop-market sell order with a stop price of €90. As soon as the price tracked by the platform reaches €90, the sell order is activated.

If the cryptocurrency is ultimately sold for €89, the loss is €11, excluding fees. So the sale doesn’t always happen at exactly the set stop price.

Why is a stop-loss important in crypto?

Prices in crypto markets can move quickly, and many markets are open around the clock. A stop-loss lets you set an automatic exit instruction in advance, without having to keep checking the price yourself.

That’s why the term often comes up in discussions about price drops, trading strategies, liquidity, and derivatives trading. When many stop orders are triggered around the same price, the resulting market orders can intensify a price drop or rise.

A stop-loss doesn’t guarantee a maximum loss. During a rapid price move or when liquidity is low, a stop-market order may be filled at a much worse price. A stop-limit order, on the other hand, may remain unfilled while the price continues to move. A brief price spike can also trigger the order, after which the price recovers.