How to Place Stop Orders on a Crypto Exchange? Two Advanced Tools: One-Cancels-the-Other Order (OCO) and Stop Limit
How to master such advanced tools as One-Cancels-the-Other Order (OCO) and Stop-Limit order in cryptocurrency trading? Why do these two types of combined orders help save your trading capital? What is the advantage of these orders and why should you definitely learn how to use them?
Today we will talk about two types of orders that are convenient for both beginners and advanced traders. Most traders use only one of them — a limit order. They have to spend hours working on charts, looking for entry and exit points and, accordingly, lose time and nerves. Let's consider two more advanced tools for opening orders — One-Cancels-the-Other Order (OCO) and Stop-Limit order, which allow you to safely move away from the charts with confidence that orders will be executed automatically.
OCO Order: Place Two Orders Simultaneously
OCO (One Cancels The Other) or an interchangeable order allows you to place two trades at the same time. It combines a limit order with a stop-limit order, provided that only one of the two is executed. If you want to maximize your chances of a win-win game on a crypto exchange, you need to learn how to use extended orders. OCO is just one of such orders. In fact, when you place an OCO, technically you are placing two orders at the same time. OCO works like this: when one order is accepted, the other is automatically canceled. Please note that the cancellation of one order in the same way will entail the cancellation of another.
Experienced crypto traders who want to reduce risks know and love this type of orders. An OCO order is, in fact, a great risk management tool, and it would be a mistake to overlook it, because planning and knowledge of risk management tools is the basis for managing your trading portfolio.
OCO Order Example
Let's say you have opened a long position on Ethereum and placed two sell orders that determine the exits with profit and loss. If the buy order is executed at the entrance, then two sell orders are placed (one for profit and one for loss) above and below the initial entry price.
The orders you open are different from market orders. The profit order here is a limit order. It is sent directly to the exchange where it is stored. The losing order here is a stop order. It will be executed only when the price reaches the amount you specified.
Typically, an OCO order consists of a take profit order (limit sale) and a stop loss order (stop limit). When one of them is executed, the other is canceled. For example, if the market moves sharply up and down, you may not have time to open a position at a predetermined level. But if you set up an OCO order, it can be a great solution in such chaotic situations.
How to Use OCO Orders?
To go to the OCO order on a crypto exchange, find and click on "Stop Limit" to open the drop-down menu and select "OCO".
On Binance, OCO orders can be placed in the form of a pair of buy or sell transactions. After selecting this option, a new type of zone for forming trades will be loaded, as shown above. This interface allows you to set a limit and a stop limit order at the same time.
The "Price" field is the cost of your limit order. This order will be displayed in the order book.
Stop Limit order:
The "Stop" field is the price at which the stop limit will be triggered (for example, 0.0038950 BTC).
The "Limit" field is the actual price of your limit order after the stop limit is triggered (for example, 0.0038900 BTC).
After placing an OCO order, you can view the details of your trades in the "Open Orders" section, which is located below.
As an example, let's assume that you have just bought 5 BNB at the price of 0.0038837 BTC, since you assume that their value is close to the main support zone and will soon begin to grow again.
In this case, you can use the OCO function to place a profit order, the cost of which will be 0.0040 BTC together with a stop limit order of 0.0038900 BTC.
If your prediction is correct and the price rises to 0.0040 BTC or higher, your sell order will be executed and the stop limit will be automatically canceled.
On the other hand, if you make a mistake and the price drops to 0.0038950 BTC, your stop limit order will trigger. This will potentially minimize your losses if the price continues to fall.
Please note that in this example, the stop price is 0.0038950 (trigger price), and the limit price at which your order will be closed will be 0.0038900 (the trading price of your order).
This means that your stop limit will trigger at the moment when the price reaches 0.0038950. But in fact, your order will be executed at a price of 0.0038900. In other words, if BNB/BTC falls to or below 0.0038950, a limit order will be placed to sell at 0.0038900 per coin.
OCO is a simple but powerful tool that allows you and other users of the Binance cryptocurrency exchange to trade in a more secure and universal way. This special type of order can be useful for taking profits, limiting risks, and even for entering and exiting positions. Nevertheless, it is important to have a good understanding of how limit and stop limit orders work before using OCO.
Stop Limit Order: Freeze the Price to Avoid Losses
The best way to understand how it works is to divide it into 2 parts: stop price and limit price.
The stop price is responsible for placing a limit order, if the asset reaches a certain value, and the limit price is a predetermined value of the limit order at which it will be implemented. Therefore, as soon as the stop price is reached, the limit order will be immediately put up for sale.
The price for setting the stop and limit may be the same, this is not a mandatory requirement. Nevertheless, it is much safer to set the stop price (trigger price) a little higher for sell orders or lower for buy orders, compared to the limit. This increases the probability that your limit order will be bought after the stop limit is triggered.
How To Use Stop Limit Order?
Let's say you just bought 5 BNB at 0.0013561 BTC, as you assume that the price is close to the main support level and is likely to start rising.
In such a situation, you may want to place a stop-limit sell order to reduce losses in case your assumption turns out to be incorrect and the price starts to fall. To do this, click on the stop limit tab and set the stop and limit price, as well as the number of BNB coins that you want to put up for sale.
If you think 0.0013500 BTC is a reliable support level, you can set a stop limit order just below this price (if it does not hold). In this example, we will set a stop limit of 5 BNB with a stop price of 0.0013590 BTC and a limit price of 0.0013540 BTC.
After you click on "sell BNB", a confirmation window will appear. Make sure everything is correct and then click "Confirm".
You can scroll down the page to familiarize yourself or manage your open orders.
Please note that the stop limit order will be placed only if the stop price is reached, and the limit order will be executed only when the value of the asset reaches your limit price. If your limit order was opened (at a stop price), but the value of the coin does not reach the price you set, the limit order will remain open.
OCO order and Stop Limit are unique types of conditional orders that reduce risk and lock in profit for entry and exit orders. To understand how OCO Orders work, you need to understand what limit and stop limit orders are. This order type is supported by the best cryptocurrency platforms such as Binance, TrailingCrypto and others. Always keep in mind that in order to correctly place a One-Cancels-Other order, as in all other market transactions, you need a deep understanding of the market and trading methods. Remember, only you are responsible for your decisions in the market.
Author name: Albert Galeev
Quickex.io partner writes