Stop-loss (also known as Stop order) works automatically by closing a cryptocurrency trading position when the price reaches a particular threshold. Stop-loss is required for risk management; Traders can calculate the size of the position to open and how much money to risk on the trade. Stop-loss, as the name suggests, is a feature built into cryptocurrency exchanges to avoid additional losses on a trade you have already taken. The tool is designed to limit maximum trading losses by automatically liquidating assets when the market price reaches a certain value.
What is the Stop-Loss feature for Crypto Trading?
It is the feature of a cryptocurrency exchange designed to protect against excessive loss. Stop-loss leverages the price method for identifying the top or bottom value of a cryptocurrency (such as bitcoin or ethereum) trade. It is a software-based feature that reduces potential losses by closing the trade when the price exceeds the set benchmark value. For example, the lower price is calculated using the risk level of the exchange minus the price determined by the traded coin. The software helps in the purpose of risk management to avoid large-scale loss. The technicalities of the tool are described in detail in the article on Securities.
Advantages and Disadvantages of using Stop-Loss
Advantages of using stop-loss: The amount of money you lose is calculated using a specific formula that specifies the percentage you want to lose. To open the trade, the amount you are risking is set at a specific percentage to minimize losses. Technically, a trader has to use a specific amount of margin in order to take a risk. Stop-loss can be used to handle bigger positions in crypto. For example, if you want to open a multi-million dollar bitcoin trade then it is a must to use the stop-loss method. Disadvantages of using stop-loss: You must know the parameters of the stop-loss if you want to place a proper stop loss. If you open the trade, the trader has to set the stop-loss point and time. This means you must have a loss – though minimal!
How to use Stop-Loss in Cryptocurrency Trading
When initiating a cryptocurrency trade, you need to set a stop loss. A stop loss is a specified value to which you can trade an asset to prevent further losses. You set the stop loss to stop you from incurring further losses. Buy more at a certain price and you are close to reaching your stop. When you do this, the trading algorithm reverts your stop-loss so that you open a position to the next price tag. It’s because the trading software wants to avoid further losses. Traders will open a position at a higher price than the one they consider as a ‘smart’ stop. These investors might look for a quick buck when they open the position. But if the price falls, they are likely to take a loss.
It’s important to think about stop-loss correctly before you start trading or actually purchase an investment that requires you to open a position with a specific trading strategy. Remember that no automated trading system can replace a sound understanding of market trends and psychology, and a trader must always do their own due diligence on the future movements in a stock. Stop-loss is an important tool to understand how much to risk on a trade before you buy or sell assets, and it must be understood by traders who use it, in order to achieve success.
However, if you do not want to lose at all, preferably use an auto trading app such as the Royal Q bot. Royal Q employs the Floating-Loss strategy instead of the Stop-loss. Click here to get started with the Royal Q auto crypto trading app. You will need to set up your account in the Binance cryptocurrency exchange.