Get the weekly summary of crypto market analysis, news, and forecasts! This Week’s Summary The crypto market ends the week at a total market capitalization of $2,17 trillion. Bitcoin continues to trade at around $62,300. Ethereum experiences no changes and stagnates at around $2,400. XRP is down by 2%, Solana by 1%, and Dogecoin by 3%. Almost all altcoins are trading in the red, with very few exceptions. The DeFi sector decreased the total value of protocols (TVL) to around…
What Are the Differences Between Stop-Loss Orders and Portfolio Stop Loss?
In a volatile market like crypto, investors always look for ways to protect their assets. In this market, just like any other, nobody wants to lose money. Consequently, it’s essential to introduce a price floor for the value of your assets.
These situations can benefit from stop-loss orders or portfolio stop losses. However, some people need help figuring out where to set their prices. If you set them up too far away, you could lose a lot of money in a tragic scenario.
Our quick guide will explain the difference between the two strategies traders can employ to protect their portfolios. Understanding the peculiarities of stop-loss orders and portfolio stop losses is fundamental for every trader.
The Idea Behind a Stop-Loss Order
An order to sell assets at a predetermined price is a stop-loss order. These orders assist investors in reducing the potential loss they may face while trading. For example, if you placed your threshold of 5% below the purchase price, you might limit your loss to 5%.
Many alternative stop and limit orders exist based on your market timing strategy. However, we can identify two main types of stop-loss orders, as we explain in the following subsections.
Stop Order
An order to purchase or sell a coin when its price reaches a certain level is a “stop order.” Once the token comes to a stop order’s price, it automatically becomes a market order.
Purchase stop orders have a stop price above the current market price. Generally, a short seller’s stop order can restrict a potential loss or safeguard an established profit. Indeed, shorting a coin can create significant losses if its price increases, which explains the popularity of stop orders.
An order to sell at a price lower than the latest market price is a sell-stop order. A sell-stop order is helpful for anyone going long on a coin and fearing sudden market crashes.
Trailing Stop Order
A trailing stop order happens when the trader does not determine a fixed stop price. Instead, a preset percentage or dollar amount is the system’s value to close a position.
With constant updates, the trailing stop price follows the coin’s market price. So, for example, will the stop price increase if the coin price moves up (and vice versa)?
In other words, a trailing stop order makes a classic stop order “dynamic.” Therefore, this mechanism can be particularly efficient if you do not have a fixed price threshold in your mind.
Extending the Concept to All Your Assets: Portfolio Stop Loss
Stop-losses are common when managing a trading strategy on a single market pair. But what about portfolio stop losses? In this case, we’re talking of a system looking at the whole portfolio value of a trader.
Forget about individual coins; portfolio stop-losses act on all your coins in a lousy market scenario.
A system will convert all the investors’ funds to a stablecoin. It is less likely that a portfolio would continue to fall if an algorithm converts it into stablecoin.
Key Takeaways
Our guide intuitively illustrated the difference between stop-loss orders and the portfolio stop-loss system. While the former considers our single trades, the latter uses our entire portfolio to limit losses.
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