Cryptocurrency Trading Conditional Orders Guide
Cryptocurrency trading conditional orders allow you to take your crypto trading to the next level by automating your buying and selling without being tethered to your screens 24/7. Rather than simply using market orders, traders can add conditional orders to their trading arsenal and use the order type that best suits their trading strategy and market conditions.
Find out about crypto trading conditional orders and how you can use them in your trading.
What Is A Crypto Trading Conditional Order
Crypto trading conditional orders allow you to set order triggers based on one or more specific criteria. These criteria are typically based on the crypto price or other market factors such as market volatility.
Crypto trading conditional orders are ideal for traders who do not sit in front of their screens all day or for part-time traders who have a day job and are unable to monitor crypto prices throughout the day. These conditional orders allow these groups of traders to achieve their buy and sell orders automatically based on the parameters that they have set in advance.
Traders who want to implement specific trading strategies, mitigate risk, and reduce emotions in their trading will find conditional orders useful.
How Do Crypto Trading Conditional Orders Work
Crypto trading conditional orders work by allowing traders to specify certain conditions that must be met before an order is executed through a cryptocurrency exchange. When the specified conditions are met, the crypto exchange automatically executes the orders on behalf of the trader.
Crypto trading conditional orders work by allowing traders to automate their trades based on specific conditions they set in advance. For example, a trader might set a conditional order to buy a particular cryptocurrency if the price rises above a certain level or sell if the price of the crypto falls below a certain level.
Types Of Crypto Trading Conditional Orders
There are many different types of crypto trading conditional orders and these are some of the more common ones that you can use to buy and sell crypto.
1. Limit Order
A limit order is an order to specify the maximum price and minimum price that a trader is willing to buy or sell a cryptocurrency. Limit orders are typically used by traders who have specific price targets in mind and want to control their entry or exit prices.
They allow traders to avoid paying more or receiving less than their intended price but there is no guarantee that a limit order will be executed if the market does not reach the specified limit price.
Example: Suppose that you want to buy Bitcoin (BTC) at $40,000 and you do not want to pay more than that price. You can place a buy-limit order for 1 BTC at a limit price of $40,000. This means that you are willing to buy 1 BTC at a price of $40,000 or lower. If the price of Bitcoin drops to $40,000 or below, your stop order will be triggered.
2. Stop Order
A stop order, also known as a stop-loss order, is a type of order to buy or sell a crypto once the asset has traded above the specific price for a buy-stop order and below the specific price for a sell-stop order. Stop orders are used by traders to limit potential losses and protect profits in the crypto markets.
A stop-loss order becomes a market order when the specific price level is reached. Stop orders help traders automatically exit a trade when the market moves in an unfavourable direction beyond a certain price point.
Example: Suppose that you own 1 Ethereum (ETH) and you want to protect yourself from potential losses if the price starts to drop. The current market price is $30,000 per ETH and you decide you want to exit your position in Ethereum if its price falls below $28,000. You can set a sell-stop order for 1 ETH with a stop price of $28,000. If the price of Ethereum drops to $28,000 or below, your sell-stop order will be triggered.
3. Stop-Limit Order
A stop-limit order is a type of order that combines the features of both a stop order and a limit order. It allows traders to specify two price levels: the stop price and the limit price.
When the market price reaches or surpasses the stop price, the order becomes a limit order where the order will be executed at a specific price or better. Stop-limit orders are commonly used by traders to control the entry and exit points with a greater degree of precision.
Example: Suppose that you want to buy Bitcoin and you want to buy it if the price starts to rise, but you want to ensure that you do not want to pay above a specific maximum price. The current market price is $40,000 per BTC. You decide that if the price of Ethereum rises above $41,000, you want to buy it, but you do not want to pay more than $42,000 per BTC.
You place a buy stop-limit order for 1 BTC with a stop price of $41,000 and a limit price of $42,000. If the market price of Bitcoin rises to or above $41,000, your buy stop-limit order is activated. The order now becomes a limit order to buy 1 BTC at a price of $42,000 or lower.
4. Trailing Stop Order
A trailing stop order is a type of order that helps traders lock in profits or limit potential losses as the market price of a crypto moves in a favourable direction. It uses a dynamic stop price that follows the market price at a fixed distance (either a percentage or a dollar amount).
If the crypto price moves in a favourable direction for the trader, the stop price will “trail” the price of the asset by the specified percentage or dollar amount (“trailing stop”). However, if the price of the asset moves in an unfavourable direction, the stop price will remain unchanged. The stop order will be triggered once the asset’s price reaches the trailing stop price.
Example: Suppose that you own Ethereum and you want to sell it if its price increases to secure your profits without having to constantly monitor the market. The current market price is $30,000 per ETH and you decide to use a trailing stop order and set a trailing percentage of 7%. This means that if the market price of Ethereum increases to $33,000, the stop price will move up to $33,000 – 5% = $31,500.
As the market price of Ethereum continues to rise, the stop price will follow at a 5% distance from the highest price achieved after your trailing stop order was placed. If the market price of Ethereum falls by 5% or more from its highest point, your trailing stop order will become a market order and the order will get triggered.
5. Take-Profit Order
A take profit order is a type of order to lock in profits at a predefined price level when the market price of a crypto moves in a favourable direction. The order is automatically executed when the market price reaches or surpasses the specified take-profit price, allowing traders to take their profits.
Example: Suppose that you own Bitcoin at $40,000 and you want to realise your gains if BTC price increases to $44,000. You place a take-profit order to sell your BTC at $44,000. This means that if the market price of Bitcoin reaches or exceeds $44,000, your take-profit order will automatically become a market order to sell your BTC at the prevailing market price.
Benefits Of Crypto Trading Conditional Orders
- Reduced Monitoring and Automation
Crypto conditional orders automate the execution of trading strategies based on predefined conditions, reducing the need for continuous monitoring and manual intervention in the markets.
- Risk and Risk-Reward Management
Conditional orders allow traders to set stop-loss orders to limit potential losses and take-profit orders to secure profits. Trailing stop orders helps lock in gains as prices rise, reducing the risk of giving back profits in a market reversal.
Traders can also use conditional orders to manage their risk-reward ratios. For example, they can use stop-loss and take-profit orders to ensure that potential profits are larger than potential losses, helping to maintain a positive risk-reward balance.
- Precision
Traders can specify precise entry and exit points using conditional orders to enter or exit positions at specific price levels to maximize gains or minimize losses.
- Emotion Control
Emotional decision-making is a common pitfall in trading. Conditional orders can help remove emotion from the equation by executing trades based on predetermined criteria. This prevents impulsive decisions driven by fear or greed.
When used correctly, cryptocurrency trading conditional orders can be powerful tools for traders to automate their trades and manage their risk in the markets. By setting the parameters and specific criteria in advance, traders can ensure that their trades are executed automatically without the need for them to be in front of their screens. Using a combination of the different conditional orders can also potentially allow traders to improve their profitability and risk management in the crypto markets.
Disclaimer: This material is for information purposes only and does not constitute financial advice. Flipster makes no recommendations or guarantees in respect of any digital asset, product, or service.
Trading digital assets and digital asset derivatives comes with significant risk of loss due to its high price volatility, and is not suitable for all investors.