From the LBank blog.
When it comes to trading on LBank Futures, one of the most important tools in a trader’s arsenal is the use of stop orders. Stop orders can be used to manage risk, protect profits, and control losses.
However, there is no one-size-fits-all approach when it comes to using stop orders. Every strategy has its pros and cons, depending on market conditions and the trader’s specific goals. This article will examine what stop orders entail, the various stop order types available on LBank Futures and how traders can use them to achieve their desired outcomes.
LBank Futures is a cryptocurrency futures trading platform that allows traders to buy and sell various digital assets using leverage. To help traders manage their positions, LBank Futures offers various tools and features, including stop orders.
Stop orders are an essential tool for traders who want to minimize their risk and protect their profits. In this article, we will explain what stop orders are, how they work in LBank Futures, and how traders can use them to improve their trading strategy.
A stop order is a type of order that is triggered when the market reaches a specific price level. The purpose of a stop order is to limit losses or protect profits by automatically buying or selling an asset at a predetermined price.
You can think of these orders as conditional orders because a condition is created. For instance, if it looks like it’s going to rain outside, I will bring my umbrella along. But if it doesn’t rain, I won’t use my umbrella. We have created a condition of using my umbrella only if it rains. But this time, we create a condition for our investments.
For example, if your trade position is currently trading at $50 and you don’t want to lose more than 10%, you place a stop order to sell at $45, which is 10% away from $50.
$50×10%=$5 and $50-$5=$45
Should the trade position trade down to $45, your set stop order will trigger a market order, and will be filled at the next market price.
Using a fixed price for stop order at $43 instead of using a percentage means the trade won’t be executed to sell until the price hits $43 or less. Whether you choose a fixed price or a percentage price, a stop order allows you to exit a trade at a certain percentage (5%, 10% or more) or fixed price ($46, $44, $42), and thereby eliminate emotions that may surface.
There are two common types of stop orders — stop-market orders and stop-limit orders.
A stop-market order is an instruction to buy or sell an asset at the prevailing market price once the stop price is reached. This means that once the asset’s price reaches the stop price, the order becomes a market order, and the trade will be executed at the best available price.
A stop-limit order, on the other hand, is an instruction to buy or sell an asset at a specific price or better once the stop price is reached. The order will only be executed if the asset’s price reaches the stop price or better. If the specified price cannot be achieved, the trade will not be executed.
Stop-market orders are useful in fast-moving markets where prices can change rapidly, as they guarantee the execution of the trade. However, they carry the risk of slippage, which is the difference between the expected price and the actual execution price.
Stop-limit orders are useful when a trader wants more control over the price at which a trade is executed. By specifying a price, traders can ensure that they only execute trades at their desired level, but they run the risk of the order not being executed if the asset’s price does not reach the stop price.
In LBank Futures, traders can use stop orders to open or close a position. To use a stop order, traders must first select the asset they want to trade and choose the type of order they want to place (stop-loss or take-profit).
Once the order type is selected, traders must then set the trigger price, which is the price at which the order will be executed. For example, if a trader is long on Bitcoin (BTC) and wants to protect their position, they might set a stop-loss order at a price below their entry price. If the market falls to this price level, the stop-loss order will be triggered, and the position will be automatically closed.
Alternatively, if a trader is short on BTC and wants to take profits, they might set a take-profit order at a price above their entry price. If the market rises to this price level, the take-profit order will be triggered, and the position will be automatically closed.
It’s important to note that stop orders in LBank Futures are not guaranteed to be filled at the exact trigger price. This is because futures trading involves leverage, and the market can move rapidly in either direction, causing slippage. Traders should also be aware of the risks associated with trading on margin, as losses can exceed the initial investment.
Set stop-loss orders to limit losses: Stop-loss orders can be used to limit losses in volatile markets. By setting a stop-loss order at a predetermined price level, traders can protect their capital and avoid large losses.
Use take-profit orders to lock in profits: Take-profit orders can be used to lock in profits when a trade is going well. By setting a take-profit order at a predetermined price level, traders can ensure that they don’t miss out on potential gains.
Combine stop orders with technical analysis: Traders can use technical analysis to identify key price levels and then use stop orders to enter or exit trades at these levels. For example, a trader might use a moving average crossover to identify a trend reversal and then set a stop-loss
Stop orders are a critical tool for traders on LBank Futures as they essentially provide a way to manage risk, protect profits, and control losses in trading. Stop-market orders and stop-limit orders are two common types of stop orders that traders can use to achieve their objectives.
However, regardless of the type of stop order used, it’s essential to carefully consider market conditions and risk tolerance when setting up these orders.
Disclaimer: Derivatives are often volatile, and this can be a risky investment. The information provided in this article is solely for educational purposes and shouldn’t be regarded as financial advice.
This article came directly from the LBank blog, found on https://lbank-exchange.medium.com/what-are-stop-orders-in-lbank-futures-1cbe37c0768b?source=rss-87c24ae35186——2