What is a stop-limit order?
A stop-limit order is an order that has a trigger price (or a stop price) and a limit price. When the trigger price is reached, it places the limit order. The limit price is the specific price of the limit order the trigger price triggers.
Once your trigger price has been crossed, the limit order is immediately placed on the order book.
When to use stop-limit order
- You want to acquire (buy/enter position) some asset at some price in the future.
- You want to get rid (sell/exit position) of some asset at some price in the future.
- You don’t want your orders to be presented in the order-book at the aggregated price level. As you know, when you place a limit order, nobody can see this order and determine who placed it, but he sees it as an aggregated price level in the order-book, but in case of stop-limit order, nobody sees anything in the order-book.
Stop-limit terms and mechanics
Trigger price: When the asset’s price reaches the given trigger price, the stop-limit order is executed to buy or sell the asset at the given limit price or better.
Limit price: The selected (or potentially better) price that the stop-limit order is executed at.
Quantity: The number of assets to buy or sell in the stop-limit order.
Example (enter position)
Imagine that the last traded price of BTC is 40434 USDT, and you feel that there is resistance around 41000 USDT.
If you think that the price will go higher after the price reaches the resistance level, you can put a Stop-Limit order to automatically buy more BTC at the price of 41030 USDT. You cannot just put a limit order because it will be fulfilled immediately, but you can place stop-limit order which will do what you want, and you don’t have to continuously watch the market waiting for the price to reach your target price.
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] from the trading view to begin making your order.
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 41010 USDT, and the limit price is 41030 USDT.
3. Double check your stop-limit order carefully before finally clicking confirm to submit it to the exchange.
View existing stop-limit orders
Once your orders have been submitted and stay in an ‘active’ state (not fulfilled), they can be found in [Open Orders].
When orders are executed or canceled, your stop-limit order history can be found under [Order History].
Recommendations & Cautions
1. Always set limit-price of stop-limit order slightly higher (in case of buy direction) or lower (in case of sell direction) to increase chances of fulfilling underlying limit-order
The trigger and limit prices can be the same. But, it’s recommended that sell orders set your trigger price (stop price) slightly (depends on the volatility for the pair you trade) higher than the limit price and vice versa for buy orders, set your trigger price somewhat lower than the limit price. This will reduce the risk of your order not being fulfilled. The price difference allows for a safety gap in price where the order is triggered and where it is fulfilled. But keep in mind that the more significant difference between trigger-price and limit-price, the bigger slippage you will get in the worst case.
2. Placing 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.
When the price of the asset reaches the trigger-price of the stop-limit order, then this:
- placing the underlying stop-limit order is guaranteed at the limit price specified in the stop-limit order, and the amount required for an underlying limit-order is reserved in advance;
- filling a resulting limit order is not guaranteed because it depends on market conditions (market prices, liquidity);
To increase chances of fulfilling limit order generated by stop-limit order trigger, you must set underlying limit-price far enough from trigger-price toward execution price (in case of buy order limit-price must be greater of trigger-price and wise versa for a sell order), but be careful, if you setup limit-price far from trigger-price you agreed on execution of the order by that price in the worst case, which may lead to losses.
Example: trigger-price is 1000 and limit-price is 1000.1 - the price difference is 0.01%, so in case of successful limit-order execution max slippage may be 0.01% but if liquidity of the coin is not good enough, for example, the best offer price of the asset became greater 1001 (and never came to value lower or equal to 1000.1) right after stop-limit order triggered - limit order may be not executed ever or with very low probability, so we may decide to change limit-price to 2000 to ensure the highest probability of the underlying limit-order execution, but now we create a situation where maximum slippage becomes (2000-1000)/1000*100=100% of price deviation which means the possibility to lose money in the worst case (low order-book density and wide spreads), that’s why you always must think carefully before choosing how big difference between trigger-price and limit-price.