A limit order is a request to buy or sell a certain amount of digital currency at a specific price. When you place a limit order, you are essentially setting the maximum price you are willing to pay to buy a cryptocurrency or the minimum price you are willing to sell it.
Traders usually place sell orders with limits above the current market price and buy orders with limits below the current market price. If you place a limit order at the current market price, it will likely be filled within a few seconds.
On the other hand, a stop-loss order is an order to buy or sell a cryptocurrency when it reaches a specific price, known as the stop price, and then execute the trade at a limit price you specify. The limit price is the minimum you are willing to accept when selling or the maximum you are willing to pay when buying.
The main difference between the two is that a limit order is used to specify the price at which you want to buy or sell, while a stop-loss order is used to determine the price at which you want to activate the trade and the price at which you want it to be executed.
How does a stop loss order work?
A stop-loss order is an advanced trading order that combines the elements of a stop order and a limit order. It is commonly used in cryptocurrency trading to automatically buy or sell a digital currency when it reaches a certain price level.
The best way to understand a stop loss order is to break it down into parts. The stop price acts as an indicator to place a limit order. When the market reaches the stop price, it automatically creates a limit order at a custom price (limit price).
Therefore, to create a stop-loss order, you must set two different price points: the stop price and the limit price. The order becomes active and activates the limit order when the stop price is reached.
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