Welcome to this post, where we are going to see how stop limit orders work in KuCoin, their advantages, disadvantages and how to use them in the best possible way.
This type of orders can be found in many cryptocurrency exchanges and platforms to trade or buy and sell. And in Kucoin you will also find this type of orders.
What is stop limit
A stop-limit order is a conditional trade in a given time frame that combines the characteristics of a stop with those of a limit order and is used to mitigate risk. It is related to other types of orders, such as limit orders (an order to buy or sell a specified number of cryptocurrencies or stocks at a specified price or better) and stop-on-quote orders (an order to buy or sell a security after its price has exceeded a specified point).
Stop limits are a type of order also found in the stock market and in stocks, just like cryptocurrencies. Their main advantage is to mitigate risk and control very well when you buy and sell a cryptocurrency in question. Buying at a point indicated by a limit order, and selling with a stop order.
How to place stop limit in KuCoin
Stop-limit orders are used when they are not monitoring the price of a cryptocurrency, and the order allows to trigger a buy or sell order when the value reaches a certain point. Once the price is reached, the order is automatically triggered. To place a stop limit in KuCoin, you must go to markets, and there the pair you want to trade. You will see in spot, as in futures and other financial products, that there are market, limit, stop limit and stop market options. Simply select stop limit.
Now, in stop limit, you must indicate two prices of the cryptocurrency where you want the operation to be executed, the first is the stop price, and the second is the limit price as indicated in each box. You will also see below an advanced and settings option. If you click there, you will be able to set the time that the limit stop order will be active.
So it is very important to indicate the time you want the order to take into account the two parameters of stop and limit that you have indicated to adjust your strategy. Since it will depend on the time that you indicate in many occasions that the order will be executed or not, if it moves in the indicated price range.
Below you can see an example of what a stop limit order with BNB would look like, where the stop is placed at 500, and the limit at 502.
Now, let’s look at the two main stop-limit orders that are placed:
Stop Limit buying
A buy limit is used to buy a cryptocurrency or asset if the price reaches a specific point. It helps to control the price that is bought of the stock once a maximum acceptable price has been set for that asset. Once you specify the highest price you may be willing to pay for an asset, you set a stop price and a limit price. The stop price is a price that is above the market price of the asset, while the limit price is the highest price you are willing to pay for the asset.
Let’s look at this with an example. If you intend to buy Bitcoin valued at $40,000 and it is expected to rise today, you can set a limit price at $42,000. This means that once the price reaches $42,000, the trade is going to be executed and the order becomes a market order. If the limit order is capped at $45,000, the order is executed after it reaches $42,000, and if it goes above $45,000, it is not executed.
Stop Limit Selling
A sell limit order is a conditional order to sell an asset when its price falls to a specific price – i.e., the stop price. A stop sell price has two components: a stop price and a limit price. The stop price is the price at which the sell limit order is triggered, while the limit price is the lowest price the person is willing to accept.
A sell stop order instructs the market maker to sell the asset if the price decreases to the stop point or below, but only if the trader wins a specific price per asset. For example, if the current price per Bitcoin is $45,000, the trader can set a stop price at $42,000 and a limit order at $40,000. The order is triggered when the price drops to $42,000, but not below $40,000. Below $40,000, the order will not be executed.
Stop market vs. stop limit
A stop-market order is a standing order to sell an asset if the price reaches a certain level. The main purpose is to protect against losses if the market moves strongly in the wrong direction. They can be buy or sell orders, but no trade is placed unless the price reaches that level. When the price is reached, the stop order becomes a market order.
They are very different types of orders, while stop market, you indicate a stop loss in stop and execute the order at the market price, with stop limit, you only execute the order if it moves in the price range you have indicated in stop and limit during the indicated time.
So, stop market is used to place a stop loss to your positions and avoid losing more when you are going to make a purchase or sale. While stop limit is used to buy an asset in a specific price range for a specific time.
For example, a stop market order, if we buy bitcoin at $45,000, we can place the stop market at $43,000 so that the order is executed and we do not lose if it continues to fall.
On the other hand, with stop limit, if bitcoin is at $45,000, and we place a stop of $47,000 and a limit of $49,000, if the price moves between that price range during the time you have indicated that the order is active, it will buy bitcoin at the stop price, in this case $47,000. But if during that time, the price of bitcoin exceeds $49,000, the order will not be executed. It is a way to buy when an asset moves in a specific price range, and avoid buying if it goes beyond that range.
I hope it has helped you to know in more detail how the stop limit and stop market orders work in KuCoin. Remember that if you do not have a kucoin account, you can create one just below.