A Guide to Stop-Limit Orders on Coinbase Pro

As the world of cryptocurrency continues to attract more and more interest among average internet users, crypto exchanges like Coinbase Pro have become flooded with new traders. However, for the absolute beginner to cryptocurrency trading, gaining a grasp over all the important aspects of crypto exchanges can be quite tricky.

Today, many people have become experts at cryptocurrency trading, a trend that owes itself to the proliferation of online crypto exchanges and the growing market for online cryptocurrency learning and education.

So, if you want to get involved in crypto trading on Coinbase Pro, you will have to understand the very basics, including stop/limit orders, buy limit orders, and sell stop orders. In this article, we will guide you through what each of these terms means and why incorporating them into your cryptocurrency trading practice can go a long way.  

Please note that while we may use the term ‘stocks’ when speaking of different types of orders, all these order types are relevant to cryptocurrency stocks and are especially relevant to using a crypto exchange like Coinbase Pro.

Limit Order vs. Stop Order

In the simplest terms, a limit order is an order to buy or sell a stock at a specified price, hence the term ‘limit.’ If, say, you wanted to buy shares of a $50 stock at $50 or less, you can set a limit order for that stock that will not get filled until and unless your specified price for the stock becomes available.

In the same way, you can set a limit order for a stock you would like to sell. If your own stock is worth, say, $50 and you want to sell it for $75 a share. You can set the limit order at this preferred price, and it won’t get filled until that specific price is available.

While a limit order is a specified order, a stop order, on the other hand, is a conditional order based on a price not yet available at the time of placing the order. The stop order will only be triggered when the conditional future price becomes available.

In other words, a stop order will be triggered only when a valid quoted price has been met in the relevant market. When the stop price is met or has been exceeded, your stop order will turn into a regular market order.

What is a Stop-Limit Order?

A stop-limit order is best understood as a conditional trade that takes place over a pre-established time frame. The purpose of a stop-limit order, whether you’re trading fiat stocks or cryptocurrency stocks on Coinbase Pro, is to combine the features of a limit order with those of a stop order, thereby mitigating some of the risk involved with either one.

To place a stop-limit order, you first need to set two separate price points. These are the stop price point and limit price point. The stop price point is the start of the specified target price for the trade in question. Meanwhile, a limit price point lies outside of the price target for the relevant trade.

After this, a time frame must be set within which the stop-limit order can be triggered and executed. Beyond the specified time frame, the stop-limit order cannot be triggered, which helps to mitigate some of the risk involved in stop orders and limits orders.

The primary advantage of a stop-limit order is that the trader has very close control over when the order is to be filled. However, one disadvantage of stop-limit orders is that there is no guarantee that the trade will be executed, especially in the event that the stock or commodity in question does not attain the stop price within the pre-established time frame.

How to Use Stop-Limit Orders on Coinbase Pro

Now that we have understood what a stop-limit order is, we can learn how to use stop-limit orders on Coinbase Pro. Notably, on Coinbase Pro, what is labeled as a Stop Order is actually a Stop-Limit Order, and as explained, this merges the features of both a stop order and a limit order for the benefit of the trader.

So, let’s say you purchased a bunch of Cardano when it was just $1. Around the time that is article is being written, Cardano is trading for around $2.50, which means that you are up about 150%. While you may be okay with the price action occurring and hope that it may go up in the near future, however, what you don’t want is for the price to fall below $2, as this would make the price eat away past 100% of your profit. In other words, you at least want to make a 100% profit on your Cardano.

Since it’s impractical to stare at a screen all day waiting for the price to fall below $2, what most traders would do in this situation is to set a stop-limit order for selling Cardano.

To create a Stop-Limit order on Coinbase Pro, select ‘Sell’ from the toolbar on the right-hand side of the exchange interface. Under ‘Sell,’ select ‘Stop.’ Now, you can set your Stop price, which in the above scenario should ideally be just above $2 (say, $2.01).

After this, you need to set your limit price, which in the above-mentioned scenario should be exactly $2.00. Last, you will need to select the amount of the specific cryptocurrency you would like to sell once the stop-limit order is triggered. Once you have entered all the relevant information, double-check your prices and amounts and click ‘Place Sell Order.’

Final Words

Getting the hang of all the aspects of cryptocurrency trading on a platform like Coinbase Pro can be a bit tricky. That is why you need to remain informed about crypto exchange practices, order types, crypto price trends, and many other things to trade smartly and effectively.

So, if you want to use stop limit orders on Coinbase Pro, make sure you are well informed about the price trends of the cryptocurrency in question and make smart trading decisions based on those trends.

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