Stop Market Orders vs. Stop Limit Orders: What's The Difference & How to Place Them?

Stop Market Orders vs. Stop Limit Orders: What's The Difference & How to Place Them?

A stop market order automatically becomes a market order when a certain price is reached. A stop limit order executes at the specified stop price or better. Learn their unique features, when to use each, and steps to place them when you trade crypto on KuCoin.

KuCoin provides traders with a wide range of powerful tools, features, and order types that let you set up automatic orders when specific events occur, minimize risk, and create powerful trading strategies. Some of the most important and widely-used types of orders you can place on KuCoin are stop orders — specifically, stop market orders and stop limit orders.

 

Learn about the different order types supported on KuCoin spot trading.

 

Both stop market orders and stop limit orders are designed to allow traders to execute trades automatically when a specific price level, referred to as the stop price, is reached. While stop market orders and stop limit orders are similar, the key distinction between the two lies in how each is executed.

 

In this article, we'll look at stop market orders and stop limit orders, examine how to place them effectively and compare the differences between them. By learning how each order type works and when to use them, you can make more informed trading decisions and manage your trading strategies more efficiently.  

 

Learn all about making your first trade on the KuCoin Spot Market

 

What Is a Stop Market Order?

A stop market order is a conditional order type combining both stop and market orders. Stop market orders allow traders to set up an order that will be placed only when the price of an asset reaches a stop price. This price functions as a trigger that will activate the order. 

 

When a trader places a stop market order, the order won't be activated until the moment the asset being traded reaches the trader's desired price. When it does, the order is triggered and executed at market price. 

 

In short, a stop market order allows traders to set up orders that will activate in advance when an asset reaches a specific price.

 

How Do Stop Market Orders Work?

Stop market orders, when placed by a trader, will remain in a pending inactive state. When the traded asset reaches the stop price, the order switches from inactive to active and is executed at the best available market price.

 

On the KuCoin Spot market, stop market orders triggered by asset prices reaching the stop price are filled as quickly as possible, completing the trade almost instantly. It's important to note, however, that this can cause the execution price of the order to be slightly different than the stop price.

 

Low liquidity markets may create situations in which slippage occurs – highly volatile markets and low liquidity can cause orders submitted via stop markets to execute at the next-best market price automatically should liquidity at the stop price be insufficient to match the order at the time of execution. Remember that crypto prices can move very fast – stop market orders may result in slight deviations in order execution price from a trader's stop price. 

 

What Is a Stop Limit Order?

A stop limit order is a conditional order type that combines both stop orders and limit orders. In order to understand stop limit orders, you must first understand limit orders.

 

A limit order is placed by a trader to buy or sell an asset at a specific price or better. Unlike market orders, which execute an order at the best possible market price but don't guarantee a specific price, a limit order won't execute unless an asset reaches or exceeds a specific price, referred to as the limit price.

 

A stop limit order, therefore, has two components: the stop price and the limit price. The stop price functions as the trigger, which activates the order, while the limit price determines the maximum or minimum price at which the order can be activated. 

 

Stop limit orders can be helpful for traders active in highly volatile or low liquidity markets in which prices of assets can move quickly between entry or exit price, potentially resulting in unfavorable order fills. Stop limit orders can minimize the impact of volatility and low liquidity, helping traders place orders equal to or better than their desired price. 

 

How Do Stop Limit Orders Work?

When a trader places a stop limit order, the order will remain inactive until the traded asset or crypto reaches the trader’s desired stop price. When the price of the asset reaches this point, the order is activated and converted into a limit order. 

 

The order will not be executed until it's possible to fill the order at or better than the limit price specified by the trader. The order will be filled if the market reaches or exceeds the limit price. However, if the asset fails to reach the limit price, the order will remain open and unfilled until the conditions set by the trader are met. 

 

Difference Between a Stop Market Order and a Stop Limit Order

The most significant difference between a stop market order and a stop limit order is the manner in which the order is executed once an asset reaches the stop price. A stop market order, for example, is converted into a market order simply when an asset matches the stop price.

 

A stop limit order, on the other hand, is not instantly converted into a market order when an asset reaches the stop price. Instead, stop limit orders are converted into limit orders when the stop price is reached, which means the order won't be executed until it can be filled at or better than the limit price you specify. 

 

  • Stop market orders provide certainty of action — a stop market order will execute when an asset reaches the stop price, with no guarantee of execution price.

  • Stop limit orders are executed if and only when the market price of an asset reaches a specific price, providing greater certainty of price, but may not be filled if the market fails to reach the limit price. 

 

If you're not sure how to choose between stop market orders and stop limit orders, it's important to consider your trading objectives and market conditions when making a trade. Stop market orders are generally more effective for guaranteed execution, while stop limit orders are usually more effective for achieving specific price targets. 

 

How to Place a Stop Market Order on KuCoin

Let's explain how to place a stop market order on the KuCoin Spot market. 

 

Step 1. Navigate to the KuCoin Spot Trading Interface 

To make a stop market order, you'll need to navigate to the KuCoin Spot Trading interface. You'll need to enter your trading password into the order interface, positioned at the upper right.

 

 

Step 2. Choose the Stop Market Order Option

To create a stop market order, you'll need to select the "Stop Market" order option from the trading interface.

 

 

Step 3. Set Your Order Parameters

From here, you're ready to set up a stop market order. The left column is used to stop market buy orders, while the right column is used to set up stop market sell orders.

 

 

Enter your stop price and the amount of crypto you want to sell or buy in the corresponding fields. When you're ready to place your stop market order, select "Buy BTC."

 

How to Place a Stop Limit Order on KuCoin

Let's explain how to place a stop limit order on the KuCoin Spot market. 

 

Step 1. Navigate to the KuCoin Spot Trading Interface 

To make a stop limit order, you'll need to navigate to the KuCoin Spot Trading interface. You'll need to enter your trading password into the order interface, positioned at the upper right.

 

 

Step 2. Choose the Stop Limit Order Option

To create a stop market order, you'll need to select the "Stop Limit" order option from the trading interface.

 

 

Step 3. Set Your Order Parameters

From here, you're ready to set up a stop limit order. The left column is used to stop market buy orders, while the right column is used to set up stop market sell orders.

 

 

Enter your stop price, limit price, and the amount of crypto you'd like to sell or buy in the corresponding fields. When you’re ready to place your stop market order, select “Buy BTC.”

 

Conclusion

We hope this article has been helpful. If you have any other questions, please contact our 24/7 customer support via online chat or submit a ticket

 

For more KuCoin product guides and educational content on trading, investing, crypto, and web3 concepts, visit KuCoin Learn. Happy trading!

 

FAQs on Stop Market Orders and Stop Limit Orders

 

1. How Can I Determine the Best Stop Price and Best Limit Price for My Orders?

Determining your stop price and limit price requires careful analysis and consideration of market conditions, including general market sentiment, liquidity, and volatility. Some traders use analysis that includes support and resistance levels, technical indicators, and other technical analysis practices to plan stop and limit prices for their orders. 

 

2. What Are the Risks Associated with Using Stop Market or Stop Limit Orders?

During periods of high market volatility or rapid price fluctuations, the execution of stop orders may differ from the intended stop price due to slippage. This can result in trades being executed at prices significantly different from the expected levels.

 

3. Can I Use Limit Orders to Set Take-profit or Stop-loss Levels?

Limit orders can be used to set take-profit and stop-loss levels. Traders often use limit orders to define their desired exit points for profitable trades or to limit potential losses. Learn more about the different order types with our spot trading guides.