Let’s look at the examples of the types of orders on the BINANCE exchange, because applications are a basic trading tool. Limit order (fig. 225).
Figure 225. Limit order for ETH.
If you want to buy futures at a price below the market or sell futures at a price above the market, then use a limit order. If you do the opposite, for example, specify a price higher than the market price in the limit order when buying, then instantly buy futures at the overpriced price you specified. If you want to buy futures at a price Above the market when the price passes this level, use a stop-limit order.
Market application. If you want to buy futures instantly or sell it at a market price, use a market order (Fig. 226).
Fig.226. Market application for ETH.
Stop-limit order. It is used if you need to buy above the market price or sell below the market price when the current price passes the limits you set. Figures 227, 228 show purchase and sale orders. Pay attention to the price setting in the application fields. Be sure to take into account the slippage of the price with its sharp movements, otherwise the price will “fly” your request and will not fulfill it. To do this, set a sufficient gap between prices for this cryptocurrency. So a gap of $5 is sufficient for ETH. The commission for limit orders is lower than for market orders.
Fig.227. Stop-limit order for the purchase of ETH.
Fig.228. Stop-limit order for the sale of ETH.
Stop-market application. It differs from the stop-limit in that the order will be executed in any case at the market price. Has a higher exchange commission.
Fig. 229. Stop-market order for the purchase of ETH.
Trailing stop request. A trailing stop order allows you to place an order when a certain percentage of the maximum/minimum of the market price is reached in conditions of increased market volatility. This type of order helps to limit losses and protect profits when a trade moves in an unfavorable direction.
The trailing stop moves after the price when it moves in a favorable direction. The order guarantees profit by leaving the position open and moving the price in a profitable direction. The trailing stop does not move in the opposite direction. If the price makes a reversal in the unprofitable direction by a certain percentage, the trailing stop will close the transaction at the market price.
You can place a trailing stop order when opening a trade, although this is rare. A trailing stop can be placed as a “Position Reduction” type order in order to reduce or close a position.
For a long position, a trailing stop order for sale will be placed above the opening price of the position. The price of the trailing stop increases by a certain percentage. A new trailing stop price will be formed when the price moves up. When the price moves down, the trailing stop stops moving. If the price changes by a greater value than the specified percentage deviation from the peak price and reaches the trailing stop price, a sell order will be placed. To close the transaction, a sell order will be placed at the market price.
The scheme of triggering a trailer stop order for sale is directly opposite to the scheme of triggering a buy order.
For a short position, a trailer stop will be placed to buy below the opening price of the transaction. The price of the trailing stop is reduced by a certain percentage. A new trailing stop price will be formed when the price moves down. When the price moves up, the trailing stop stops moving. If the price changes by a greater value than the specified percentage deviation from its lowest price and reaches the price of the moving stop, a buy order will be placed. To close the transaction, a purchase order will be placed at the market price.
Please note: A trailing stop order will be activated to close/exit a trade at the market price only if both conditions are satisfied (activation price and rejection percentage).
The difference between trailing stop and Stop loss
1. Stop loss helps to reduce losses, while trailing stop simultaneously fixes profits and limits losses.
2. The stop loss is fixed and must be manually adjusted, while the trailing stop is a more flexible tool that automatically tracks the direction of the price.
1. Percentage of deviation
The deviation percentage is the percentage of the price deviation in the direction opposite to your position. The deviation percentage is set manually in the “Deviation Percentage” field from 0.1% to 5%. Alternatively, there is quick access to parameters such as “1%” or “2%”, etc.
2. Activation price
The activation price is the desired price level, upon reaching which the trailing stop is triggered. If the activation price is not set, then by default it will be equal to the market price (either the “Last Price” or the “Marking Price”, depending on the types of triggers).
To be able to place a trailing stop order to buy, the activation price must be lower than the current market price. And vice versa: to be able to place a trailing stop for sale, the activation price must be higher than the current market price.
The maximum/minimum price on the market must reach or exceed the activation price.
You can read more about the instructions here https://www.binance.com/ru/support/faq/360042299292 . Figures 230, 231 show examples of placing trailing stop orders. It is also advisable to click the “Reduce positions” checkbox to trigger only open positions.
Figure 230. Trailing stop sell order (will sell an open long position when the condition is triggered).
Fig.231. Trailing stop purchase order (buy an open short position when the condition is triggered).