Stop-limit trade – Buy order
Stop limit trade is a very powerful tool that has been implemented by a lot of exchanges to help traders manage risk and reduce losses. It is simply a limit order but with an instruction that tells the exchange how to execute a trade when the prices reach a certain point. When a trader uses stop-limit to buy an asset, it becomes a stop-limit buy order and when the trader uses stop-limit to sell, it becomes a take profit order or a stop loss order.
To place a buy order in stop-limit trade on the binance exchange, go to the exchange and on the top, select trade, on the dropdown menu and click on classic. You can choose advanced if you want more advanced features like charts and indicators. But for me, I prefer using the simple interface because it has all the basic tools I need to perform a simple buy or sell trade.
Now on the classic exchange interface, search for your specific asset and choose your preferred trading pair. I chose LTC/USDT for this. Scroll down to find the buy and sell sections. We will be buying, so on the buy section, click on stop limit. In the BUY LTC input section, for the stop price in USDT (which is the price that will trigger the limit buy price) I typed in 175.05, for the limit price in USDT (which is the price I want to buy the LTC) I typed in 175, and for the amount I typed in 5 (which is the amount of LTC I want to buy). The interpretation means that, I want to buy 5 LTC for 175 USDT which is lower than current market price. As a trader, I want to buy low and sell high. Once the market price drops to 175.05, it will trigger it will create a limit buy order to buy LTC at 175 USDT.
Stop-limit trade – Sell order
We will be selling this time around, so on the sell section, click on stop limit. In the SELL LTC input section, for the stop price in USDT (which is the price that will trigger the limit sell price) I typed in 190.05, for the limit price in USDT (which is the price I want to sell the LTC) I typed in 190, and for the amount I typed in 5 (which is the amount of LTC I want to sell). The interpretation means that, I want to sell 5 LTC for 190 USDT which is higher than current market price. As a trader, I want to buy low and sell high. Once the market price increases to 190.05, it will trigger it and will create a limit sell order to sell 5 LTC at 190 USDT. This type of order is known as take profit because I am selling at a higher price than I bought.
For placing a stop-loss order, it is the same process as the take profit order but instead of putting a higher price on the stop, you put a lower price than the market price. This will allow the sell order to go as high as possible and will only trigger a sell when the price drops and reaches the stop price, then it will trigger and set the sell order to sell at the limit sell price. The interpretation means that if I buy 5 LTC at 180 USDT and I want to enjoy the price continuing to increase, but I want to reduce my losses when the price dumps quickly. In crypto market, dumps can happen at any time, so I can set the stop price to be at 175.10 USDT (which is the price that will trigger the stop loss), for the limit price in USDT, I can set the price to be 175 USDT (which is the price I want to sell the LTC to reduce my losses). Once the price dumps down to 175.01, the LTC will be sold at the 175 USDT price range so as to reduce my losses.