When a trader sets a stop order, they tell the exchange to buy or sell a cryptocurrency once the stop price has been hit.
Usually, the exchange makes the purchase or sales at the market price immediately after the stop price has been reached. In this case, the order is converted into a market order once the stop price is reached and done at the next available market price.
Traders use the stop order because they want to reduce the potential losses or shield their profits. It is important to note that though a stop order is set, it may not be filled even when the price target has been met, which is quite similar to a limit order in this aspect.
The same occurs because other traders may have set their stop order at a similar price target, and the exchange has to execute transactions based on a first come, first serve basis.
A stop order can either be a market order or a limit order. When the stop order chosen is a market order, it means that once the price of the crypto gets to the predefined target or the stop price, it is expected to be filled immediately. Stop market orders are designed to have their orders executed once a chosen price is attained.
Stop limit orders are not as simple as the aforementioned. In this case, transactions are not instantly executed once the set price is reached instead, it uses an advanced process.
As always, before opting for a type of stop order, it is essential to consider what you intend to achieve and do your due diligence. Bear in mind that this type of crypto order is usually on a first come first serve basis, meaning that your order may not be executed even if the conditions are met or it may partially be executed.
