What is a stop-loss order?
A stop-loss order is a conditional order that triggers an asset sale or position-closing order when the price reaches a preset condition adverse to the holding. In crypto spot and contract trading, it sets selling or closing conditions in advance; after triggering, actual execution is still required to exit.
How does position direction determine stop direction?
For spot holdings, falling prices reduce market value, so sell stops are usually below the current price. A contract long profits from rises and loses from falls, so it likewise triggers downward and sells to close.
A short is opposite: it profits from falls and loses from rises, so its condition is usually above the current price and triggers a buy to close. Closing reduces or ends an existing position through an opposite-direction trade.
A stop can also be above a long’s entry price. For example, after a rise, placing the condition above entry can still realize a profit when a reversal triggers selling; actual results depend on execution prices and fees.
How does a stop-loss go from trigger to execution?
It first monitors price, then submits a preset market order or limit order when the condition is met. Until then, the pending condition is not an actual quote in the order book, the list of unfilled buy and sell quotes and quantities.
Trigger and execution prices serve different purposes. The trigger starts submission; execution depends on quotes the subsequent order can match. A price jump across the trigger can create a large difference.
Contract conditional orders may also allow a trigger reference choice: last traded price is the latest trade; mark price is calculated for valuation and risk; index price usually combines several spot markets. The system checks the chosen reference, not necessarily the price currently shown on a chart. See trigger orders for the full process.
How do stop-market and stop-limit orders differ?
A stop-market attempts prompt execution after triggering; a stop-limit requires a price no worse than its limit. The former may execute away from the trigger; the latter may fail to execute without compatible quotes.
Suppose a token spot holding has a sell trigger on a fall to 90 USDT. USDT is the quote asset; figures are illustrative and orders are assumed to pass validation.
With a market stop, a market sell is submitted and accepts available bids. If an executable bid is 89.8, it may sell at 89.8; if the price has jumped to 88, execution may be near 88. Quantity exceeding available bids at one level may use lower levels. This deviation from a reference is slippage.
With a limit stop, a trigger of 90 and sell limit of 89.5 submits an order to sell no lower than 89.5. Sufficient bids at 89.8 can execute immediately there; it need not wait at 89.5. If all bids have fallen below 89, none qualifies; under a persistent validity setting, the sell rests in the book.
Thus, a stop-market does not lock the final price, while a stop-limit does not guarantee a completed sale. Market orders may also be only partly filled due to platform price protection or quantity limits. A stop specifies execution conditions, not a guaranteed maximum loss.
How do stop-loss orders differ from liquidation?
Stops use trader-defined exit conditions; liquidation is performed by the platform according to collateral conditions of leveraged positions. A stop sale in ordinary unborrowed spot trading does not involve liquidation from insufficient contract margin.
In leveraged trading, margin backs positions. Collateral assets including unrealized results form equity, which losses and fees reduce. If equity cannot cover maintenance margin and applicable fees, the platform may reduce or close positions. It does not wait for the trader’s stop level; see liquidation.
Stops and liquidation can occur in either order. For example, with a long stop below the estimated liquidation price, the same reference price and unchanged conditions, a fall may reach liquidation first. The estimate depends on current positions and collateral; with different references or changing account conditions, comparing the two displayed values alone cannot establish the sequence.
Frequently asked questions
Does a stop-loss reserve funds in advance?
It depends on product and position mode. OKX strategy-order rules use different reservation arrangements for different conditional orders. Even without a setup-time freeze, available quantity must be checked at triggering; insufficient balances or positions can prevent expected submission or execution.
Related terms
Explore take-profit orders, which trigger at favorable targets, and trailing stops, whose triggers adjust with prices, or return to the crypto glossary.
References
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