What is a Stop-limit order?

A stop-limit order is an order to place a regular limit order whet the highest bid or lowest ask reaches a specified price, known as the ‘stop’. This can be useful for protecting profits or minimizing losses.

Examples

Selling
Let’s assume that you bought 100 BTC at $5125. Now BTC is at $10230. You’ve made a good profit and want to keep Bitcoins, because you do believe it has an ability to go up. But you also aware of a high volatility in the crypto market, and the tomorrow’s headline (“Satoshi Nakamoto sold his Bitcoins”) could cause the market to crash. If you want to make sure you get out if a crash comes, you should place a stop-limit order with the following parameters (for example):

Stop: $5200
Limit: $5125
Amount: 100 BTC

You have some protection now. You’re holding your BTC, but if the price goes down to $5200, your BTC will automatically be sold, as long as there are enough buy orders at or above $5125. As with the market order, your coins will be sold at the best possible price; so, if you want to be sure your coins get sold, set the limit price even lower.

Note that your limits price doesn’t have to be lower than your stop.

If you anticipate that after touching the $5500 follows the crash to $5200, you can set your stop at $5200 and your limit at $5500. This will cause a sell order at $5500 to be placed when the highest bid drops to $5200.

Buying
Let’s suppose that XRP has crashed to $0.15. This price is very ‘tasty’, and it’s a right time to buy an amount of 1000 XRP you’ve been waiting for a long time. But if you do think the price could go down more, and you’d like to wait for it, because you’ll be able to buy it for a less price than it’s after a Ripple’s price crash. But you could be wrong, so you want to be sure not to miss out on buying if the price goes up. For example, you could place a stop-limit order with these parameters:

Stop: $0.20
Limit: $0.23
Amount: 1000 XRP

So if the lowest ask price rises to or above $0.20 per XRP, an order to buy 1000 XRP at a price of $0.23 will be placed. Now you can watch if the price goes down to buy a wished amount of Ripples, but if you are wrong and price turns the other way, you’ll still be able to buy Ripples at a bit higher price, as long as there are enough sell orders at or below $0.23 to cover your purchase.