Difference between Stop Order and Stop-Limit Order

What is a stop order?

This is something you set up so that you can trade when a specific price level is reached.

It becomes active only when the specified price is reached.

Think of it as a delayed market order.

Example of a stop order

For example, you want to buy Bitcoin.

Since the price is fluctuating, you can use a stop order to

minimize the risk of paying a high amount.

If Bitcoin's current market price is 6,000,000 yen,

and you think this price is too high and expect it to fall during the day,

then you set the stop order at 5,909,000 yen.

If BTC drops later in the day and

reaches the specified price,

a market order will be executed.

However, immediately after reaching the specified price,

the market price may rise.

In that case, it may be executed at 5,995,000 yen or

possibly at 6,000,000 yen.

However, this is a very rare occurrence.

And there is also a stop-limit order.

At first glance, it may look very similar to a stop order, but

there are important differences.

A stop-limit order

does not execute at the moment the price reaches the specified level.

Instead, another limit order is executed.

You specify a trigger price and place a different order.

For example, if the price reaches 100 yen,

you place a limit order at 120 yen.

This may seem safe, but

it has a major drawback.

The stop-limit order does not always get executed.

If volatility is high and prices swing,

the price may go below or above the specified level,

and the order may not be filled.

There are two main advantages of stop-loss orders.

Without constantly monitoring the chart, you can limit losses while protecting profits,

and prevent losses from expanding.

Because the order is not executed until the price reaches the specified level,

the trade is executed reliably.

Stop-loss orders act as a kind of insurance for traders,

helping ensure that losses do not exceed the specified point.

The main purpose of a stop-loss order is

to prevent losses from occurring.

This helps to capture the right moment to execute a trade,

which is useful for executing trades,

such as high-speed scalping, where

they are particularly helpful for protecting profits.