Market, limit, stop-loss, and take-profit orders: how they work and when to use them
1. Market Order
How it works:
- Buys or sells an asset instantly at the current market price.
- Executes quickly, but the price may differ slightly due to the spread.
When to use:
- When you need to quickly enter or exit a position (for example, during a sharp market move).
- For liquid assets (BTC, ETH), where the spread is minimal.
Cons:
- No control over the exact execution price.
- In low-liquidity markets, slippage can occur.
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2. Limit Order
How it works:
- Buys or sells an asset only at the specified price or better.
- Does not execute instantly – waits for the market to reach the desired level.
When to use:
- To enter a position at a favorable price (for example, buying Bitcoin at the support level).
- For gradual selling (place several limit orders at increasing prices).
Cons:
- May not be executed if the price does not reach the specified level.
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3. Stop-Loss
How it works:
- Automatically sells an asset if the price falls to a specified level, limiting losses.
- Can be a stop-market (sells at the current price) or stop-limit (sells at the specified price).
When to use:
- Always during active trading to minimize risks.
- In times of volatility or before important news.
Cons:
- In moments of sharp gaps (for example, on news), execution may occur worse than expected.
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4. Take-Profit
How it works:
- Automatically locks in profits when the price reaches the target level.
When to use:
- To secure profits without constant market monitoring.
- In combination with stop-loss (the "take-profit + stop" strategy is the basis of risk management).
Cons:
- If the market continues moving after taking profit, you may miss out on gains.
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My favorite type of order
Limit order + stop-loss – because:
- Allows you to control the entry price (not overpaying due to emotions).
- Automatically limits losses, even if I am not at the screen.
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Real example: when the right order saved the deposit
Situation:
- In 2021, I bought SOL at $140, expecting a rise.
- Set a stop-loss at $130 (7% risk).
What happened:
- A week later, SOL sharply dropped to $128 due to network issues.
- The stop-loss worked, and I exited with a small loss.
What would happen without a stop-loss:
- SOL continued to fall to $10 in 2022 (FTX crash).
- My deposit would have been wiped out.
Conclusion:
- Stop-loss is a must-have for any trader.
- Even if it sometimes triggers "in vain", once it saves from disaster.
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Order usage advice
1. For beginners: Start with limit orders + stop-loss (less emotion, more control).
2. For scalping: Market orders + take-profit (speed is more important).
3. Always check liquidity – on "thin" markets, orders may execute with slippage.
Main rule:
> "An entry plan is good, but an exit plan is what makes you a profitable trader."