What Is Stop-Loss?

A stop-loss order is not visible in the order book until the trigger price (stop price) is reached. For example, if a stop-loss is set at $90 for a coin bought at $100, when the price falls to $90 the order activates and a sale is made. In the stop-market type, the triggered order is executed as a market order; in the stop-limit type, a sell order is placed at a specified limit price.

The two types carry different risks. A stop-market order largely guarantees the sale, but if the price is falling fast, the sale can be executed noticeably below the stop price; this difference is called slippage. A stop-limit order controls the price, but if the price drops quickly below the limit level, it may not be executed at all and the position stays open. In long positions, the stop-loss is placed below the entry price, and in short positions above it.

Choosing a stop-loss level that is too close can cause the position to be closed unnecessarily in ordinary price fluctuations; sudden, short-lived price wicks in the crypto market often cause this. A stop-loss is generally used together with a take-profit order that realizes profit at a certain level, and in leveraged trading it can help exit the position before the liquidation price is reached.