Crypto Trading and the Saviour: Stop-Loss

Key points

• Defining the Meaning of Stop-loss
• Crypto Trading Community
• Stop-loss Strategies
• Should Stop-loss be used?

Defining the Meaning of Stop-loss

Stop-loss is a tool used in crypto trading to stop a loss after a certain limit. The idea behind Stop-loss is taken from the stock markets where stop limit and stop-loss orders are very common. 

In the crypto market, the stop-loss will liquidate the assets of an investor after they have reached a specific price. It is mostly an in-built tool in most crypto exchanges. 

Crypto Trading Community

In a recent survey, it was identified that rookie crypto investors were investing in cryptocurrency without any investigation. It was also identified that more than 40% of cryptocurrency purchases are done by beginners. 16.9% of investors investing in the crypto market had complete information about it and around 33.5% of investors either had no knowledge or had little knowledge about the crypto world. 

Stop-loss Strategies

Complete

As the name suggests, in this strategy all the assets will be sold at a set price chosen by the investor. It is recommended that this strategy is more preferable to utilize with stable cryptocurrencies than volatile ones. The reason for this is sudden loss as in the case of stable cryptocurrencies, they can remain low or could drop even further for longer periods at any anticipated price drop.      

Partial or Limited

In a stop-loss strategy, an investor can sell some of his assets after a fall in prices. The remaining assets can help an investor to reduce the losses and may assure profit when the prices rise again.

Trailing

It is the best and most advanced strategy of stop-loss. This strategy smartly minimizes the loss according to the current price, as it continuously changes with changes in prices. The only drawback that is associated with this strategy at present is that no major cryptocurrency exchange offers a trailing stop-loss order. 

Should Stop-loss be used?

Stop-loss is used when the crypto market doesn’t behave according to the price predictions of an investor. For good investors, it may not be that effective because before an investor could make a change to the current strategy, stop-loss may sell the assets. Now the investor has to start all over again and have to formulate a new strategy. 

Stop-loss can also raise problems for investors, as selling the assets at a low price will leave an investor at loss. As there are instances where crypto whales have caused a price surge and recovered it just as quickly. 

Stop-loss is a good backup tool for new investors and for professional investors who know how to use it to their advantage.         

Disclaimer: The article is just to provide information and shouldn’t be considered as any financial advice. It is advisable to conduct thorough research before investing in any cryptocurrency.

Photo by – Burak on Pexels