Stop-Limit Order

What is a stop-limit order?

A stop-limit order is an order that has the following:

1.  A Trigger Price (Stop Price): When the trigger price is reached, the stop-limit order is placed.
2. A Limit Price: This is the specific price of the limit order when the trigger price was triggered.

Once the trigger price is reached, a limit order is placed on the order book.

 

When to use a stop-limit order

1. You want to acquire (buy/enter position) some asset at some price in the future.
2. You want to get rid (sell/exit position) of some asset at some price in the future.
3. You want to keep your order hidden on the order book until the stop price is reached. As you know, when you place a limit order, nobody can see this order and determine who placed it, Unlike a regular limit order, which appears as part of the overall price levels on the order book (without showing who placed it), a stop-limit order stays completely hidden until it is triggered.

Stop-limit Key Terms and Mechanics

1. Trigger Price (Stop Price): The price that activates the stop-limit order. the stop-limit order is executed to buy or sell the asset at the given limit price or better.
2. Limit Price: The price (or potentially better) at which the stop-limit order is executed.
3. Quantity: The amount of the asset to buy or sell.

 

Example: (Enter Position)

• Imagine the current price of BTC is 40,434 USDT, and you think there’s a resistance level at 41,000 USDT.
• If you believe the price will rise further after it crosses 41,000 USDT, you can set a Stop-Limit Order to automatically buy BTC at 41,030 USDT.

A regular limit order won’t work here because it would execute immediately at the current price. But a stop-limit order waits until the price reaches your trigger point (41,000 USDT) before placing the limit order to buy at your chosen price (41,030 USDT). This way, you don’t need to constantly monitor the market for the right time to act.

How to create a stop-limit order

Continuing with our example, we will look at exactly how you can make a stop-limit order

 

1. Select [Stop-limit] on the trading view to begin making your order.

• Go to the trading view and select [Stop-Limit] from the icon in the dropdown highlighted in the images below.
  
  
  
  
  
  

2. Fill in the details of your trigger price (stop price), the limit price for the triggered limit order, and the amount of crypto you wish to purchase. Click [Buy BTC] to confirm the details of the transaction.

 

In our example, the trigger price (stop price) is 49010 USDT, and the limit price is 49030 USDT.

Enter:

• • Trigger Price (Stop Price)
  • Limit Price
  • Quantity
    Example: Trigger Price = 49010 USDT, Limit Price = 49030 USDT.

3. Double-check your stop-limit order carefully before finally clicking confirm to submit it to the exchange.

• Confirm the details entered and click [Buy BTC] to submit the order.
  
  
  
  

View existing stop-limit orders

Active Orders: View in the [Open Orders] tab until they are fulfilled or cancelled.

Once your orders have been submitted and stay in an ‘active’ state (not yet fulfilled), they can be found in [Open Orders].

 

Order History: Check completed or cancelled orders under [Order History].

When orders are executed (completed) or cancelled, including your stop-limit order history can be found under [Order History].

Recommendations & Cautions

1. Set the Limit Price Strategically

• For buy orders, set the limit price slightly higher than the trigger price.
• For sell orders, set the limit price slightly lower than the trigger price.

Why?

• • This small price difference increases the chances that your limit order will be executed.
  • The trigger and limit prices can be the same. But, it’s recommended that for sell orders, set your trigger price (the stop price) slightly higher than the limit price (depending on the volatility for the pair you trade) and vice versa for buy orders, set your trigger price somewhat lower than the limit price.
  • If the trigger price and limit price are too close or the same, your order might not get filled.
  • A small difference between these prices creates a "safety gap," increasing the likelihood that your order will be fulfilled. 
  • However, keep in mind: that the larger the gap between the trigger price and the limit price, the greater the risk of slippage (getting a worse price).

 

2. Placing an Underlying Stop Order: What You Need to Know
Placing an underlying stop order is guaranteed because the amount required for an order is reserved in advance, but the resulting limit order may not be fulfilled because the price may run away from the resulting limit order price.

Detailed description:

When the price of an asset reaches the trigger price of a stop-limit order:

• The underlying stop-limit order is guaranteed to be placed at the specified limit price in the stop-limit order, and the amount required for an underlying limit order is reserved in advance.

• While the placement of the order is guaranteed, the fulfilment of the resulting limit order is not guaranteed. This depends on market conditions such as Market prices and liquidity.
  
  To increase the fulfilment of the limit order generated by the stop-limit order trigger;

      a. Set the Limit Price Strategically:

  • For buy orders, the limit price should be set slightly higher than the trigger price.
  • For sell orders, the limit price should be set slightly lower than the trigger price.
    
    b. Balance Precision and Risk:
    • Setting the limit price too far from the trigger price increases the likelihood of the order being fulfilled.
    • However, a large gap between the two prices can lead to higher slippage and potential losses. 

Example

• Trigger Price: 1,000
• Limit Price: 1,000.1
  • The price difference (0.01%) in case of successful limit order execution, minimizes slippage which may be 0.01%, but may result in the order not being executed if liquidity is poor.
    Now, let’s say:
    • • • The best offer price of the asset rises above 1,001 immediately after the stop-limit order is triggered and doesn’t drop back to 1,000.1 or below. In this case, the limit order may never execute or execute with very low probability.
          
          To improve the chances of execution, you might set a higher limit price, e.g., 2,000.
          Trigger Price: 1,000
          Limit Price: 2,000
          but now we create a situation where The price deviation in this case becomes:
          (2,000−1,000)/1,000(2,000 - 1,000) / 1,000 × 100 = 100% slippage This means the possibility of losing money in the worst case, especially in low-liquidity markets with wide spreads (low order-book density and wide spreads).

 

Always carefully consider the gap between the trigger price and the limit price. A well-thought-out setup can strike the right balance between order fulfilment probability and potential risks.