Use of stop-loss in cryptocurrency trading
Cryptocurrency trading has slowly been growing concurrently with the digital shift. It was talked about by Wei Dai in 1998 and was first created in 2009 but was not well established back then. Cryptocurrency refers to a digitized asset as well as a channel of exchange which uses encryption algorithms to protect every transaction and verify transfer of assets.
Some of the well-known altcoins, which is short for alternative cryptocurrencies are Bitcoin, Zcash, Ripple, Etherum, and Litecoin. On the other hand, stop-loss order (also known as stop market order) refers to an order where the investor directs the intermediary to automatically sell the goods if it drops to a certain price.
For the stop-loss order to be effectively implemented and be effective in a business, some features are to be followed to the latter. One of the features is the ability to associate the order with both long and short position. This is necessary in the case where the security of an investor would be bought if it sells above-stated price. Stop-loss order also comes in handy especially when one is on vacation and can’t watch their position. The second feature is the will for the stock to be sold at the next available price if it happens to trade below a specific price. This happens perfectly only if the market is declining in an orderly manner. The stop-loss orders are a preferable strategy for limiting potential losses but during moments of high volatility, they might be unexpectedly enforced.
Every strategy used in different situations has advantages and disadvantages of its own kind and so does the stop-loss orders. On the good side, stop-loss orders help investors to be secure. This is by enabling them to be invested during good market times and during bad times giving a downside protection. In other words, it offers the investors some measure of price protection which is somehow assuring. Unfortunately, stop-loss cannot really offer price protection under every single market fluctuation situation. In case prices move around in a disorderly manner and end up triggering the stop-loss before the day ending while the stock is at a higher price, the investor will be left unable to capture the gain.
Another added advantage of stop-loss orders is it tends to take full advantage of the moments when the market is very volatile ending up to enable investors to rebalance towards their long-term goals. This is assuring and motivating to investors who are planning to implement the stop-loss strategy.
In cryptocurrency trading, the main idea of stop-loss is to prevent you from losing too much money on the certain trade by putting a sell order which is at a lower price than when you bought it. Some of the exchanges that support stop-loss orders are BitMex, Coinigy or HitBTC. Stop-loss in cryptocurrency trading brings success when implemented because it enables manipulation of the market by individual or groups who hold huge amounts of currencies which is a good thing for this enables the price to either go up or down by a large amount which usually intends to trigger stop losses.