What is a Stop-Limit order?

What is a stop-limit order?

A STOP-LIMIT feature allows traders to set a buy or sell Limit Order which will be triggered once the Stop Order price has been reached. Stop-limit orders help automate order submissions as traders can set everything in advance and do not have to monitor the market all the time. This type of order allows traders to determine when (at what prices) their limit orders should be submitted to the market and filled. Stop-limit orders also allow traders to make more profit in case market prices go up as predicted and prevent loss in case things do not go as planned.

Buy and Sell Stop-Limit Orders

1. Buy Stop-Limit Orders allow an order to be submitted once the Stop-Limit prices meet the specified conditions:

    1.1 A Buy Stop Price will serve as a trigger for the Limit Order to proceed.
    1.2 A Buy Limit Price is the price that was set by traders to execute the buy limit order once the Stop Price has been reached. The order will be matched when the market price equals the set limit price or lower.

Example:

If the current market price of Cardano (ADA) is 120 THB, a trader anticipates that if the price goes up to 150 THB, this will break the resistance* price, and then the price will drop to 130 THB. As a result, the trader sets the stop-limit buy order. The stop price (the placing price) at 150 THB and the limit price (the buying price) at 130 THB. This will enable the trader to buy ADA for 130 THB, which is cheaper than 150 THB.

If the market price only moves to 140 THB, their order will not be executed because the market price has not reached the stop price, 150 THB, making their order not yet placed into the order book.

2. Sell Stop-Limit Orders allow an order to be submitted once the Stop-Limit prices meet the specified conditions:
    2.1 A Sell Stop Price will serve as a trigger for the Limit Order to proceed.
    2.2 A Sell Limit Price is the price that is set by traders to execute the sell limit order once the Stop Price has been reached. The order will be matched when the market price equals the set limit price or higher.

Example 1: 

Supposing a trader has 1 ETH in their wallet and the current price of Ethereum (ETH) is 82,000 THB. The trader anticipates that if the ETH price falls to 80,000 THB, this will reach a support* price, and then the price will rise and hit the resistance price of 85,000 THB. As a result, the trader sets the stop-limit sell order. The stop price (the placing price) is 80,000 THB and the limit price (the buying price) is 85,000 THB. This will enable the trader to sell ETH for 85,000 THB, which is higher than 80,000 THB.

If the market price only moves to 81,000 THB, their order will not be executed because the market price has not reached the stop price, 80,000 THB, making their order not yet placed into the order book.

Example 2 (using stop-limit sell to stop loss):

Supposing a trader has 1 ETH in their wallet and the current price of Ethereum (ETH) is 100,000 THB. They anticipate that if the ETH price falls to 80,000 THB, this will signal a strong ETH downtrend. To prevent any loss from their held ETH, they create a stop-limit sell by setting the stop price at 80,000 THB and the limit price at 75,000 THB. When the price drops to 80,000 Baht, the system will immediately create a limit sell order of ETH at 75,000 THB. This allows them to sell their ETH between 75,000 - 80,000 THB price length.

If the price of ETH continues to fall below 75,000 THB and the order is not completely matched, the remaining order will continue to match when the market price returns to the stop-limit sell order or higher. As a result, the stop-limit sell function allows traders to *Stop Loss, which is a benefit of this function.

* Currently, all cryptocurrencies listed on Bitkub Exchange that can be traded support stop-limit orders except Fantom (FTM).

You may check out this video by Bitkub Academy to see how it looks when you set a stop-limit order on our application (Thai video).

Remarks:

• The order will be canceled only if you manually do it, or the order is successfully matched.
• The example above is just to help you understand better. The company reserves the right to disclaim any responsibility in the event that you follow the example mentioned and experience losses due to the market mechanism.
• *Stop Loss means selling the digital assets to keep the profit or prevent more losses (stopping the digital asset price from falling down further). At the time of Stop Loss, the investor may lose or profit while selling.
• *Resistance means the prices rise when there is more demand than supply. As prices rise, the desire to sell will eventually outweigh the desire to buy.
• *Support means the prices fall during a downtrend because there is an excess of supply over demand. The lower the prices fall, the more appealing the prices become to those waiting to buy shares.
  

FAQs

1. How long does a stop-limit order last?
Answer: After the price hits the stop price, an order will last until the set limit price is reached and completely filled or until the order is canceled by the trader.

2. If the volume in the stop-limit order is partially filled, what will happen?
Answer: An order will stay until all set volume is fully filled at the set limit price or the order is canceled by the trader. However, orders can be partially matched depending on the time when an order is sent to the system (FIFO) and the demand-supply volume at the time.

3. How much different can the stop price and the limit price be?
Answer: If the stop and the limit prices exceed the 5% difference, the system will notify the trader about the possibility that the order might be filled partially, or take a long time to be filled. However, traders can set any prices on their own decisions.

You can learn more about order types on Bitkub here.