What Is a Stop-Loss? Stop-Market vs Stop-Limit in Crypto
A stop-loss is an order that closes your position when price hits a set level. Learn stop-market vs stop-limit orders, slippage on stops and how to size risk.
Updated
A stop-loss is a conditional order that closes your position automatically when the price reaches a level you set, limiting how much you can lose on a trade. It sits inactive until the trigger price is hit, then sends a market or limit order to the exchange. The two main types, stop-market and stop-limit, trade off guaranteed execution against price control.
Key takeaways
- A stop-loss has a trigger price (stop price) and, for stop-limits, a limit price.
- A stop-market order becomes a market order: it fills, but it can slip past the stop.
- A stop-limit order becomes a limit order: it caps the price but may not fill in a gap.
- On derivatives exchanges, stops can trigger on last price or mark price.
- Position size = amount you are willing to lose ÷ distance to stop.
- For leveraged trades, the stop must trigger before the liquidation price.
How a stop-loss works
A stop-loss has two stages:
- Waiting: the order is stored by the exchange but not shown in the order book. It does nothing while the price stays on the safe side of the trigger.
- Triggered: when the reference price touches the stop price, the exchange submits a real order, either market or limit.
For a long position, the stop sits below the current price and sells when triggered. For a short, it sits above and buys when triggered.
Most exchanges let you mark a stop as reduce-only, which guarantees it can only close or shrink a position and never open a new one in the opposite direction.
Stop-market vs stop-limit
| Stop-market | Stop-limit | |
|---|---|---|
| After trigger | Becomes a market order | Becomes a limit order at your limit price |
| Execution | Near-certain | Not guaranteed |
| Price | Can be worse than the stop | Never worse than the limit |
| Main risk | Slippage in fast or thin markets | Price gaps past the limit and the position stays open |
| Fee | Taker | Taker if it fills immediately, maker if it rests |
| Suits | Protecting against large losses | Controlled exits in liquid, orderly markets |
See market order vs limit order for how the underlying orders behave.
Worked example: slippage on a stop
Assume you are long 100 units at $100 with a stop at $95. The price drops sharply, and when it touches $95 the book's bids look like this (illustrative):
| Bid price | Size |
|---|---|
| $94.80 | 30 |
| $94.50 | 40 |
| $94.00 | 50 |
Stop-market sell for 100 units:
- 30 × $94.80 = $2,844
- 40 × $94.50 = $3,780
- 30 × $94.00 = $2,820
- Total: $9,444, average fill $94.44
- Planned loss: 100 × ($100 − $95) = $500
- Actual loss: 100 × ($100 − $94.44) = $556, before fees
The extra $56 is slippage. You were out of the trade, but at a worse price than planned.
Stop-limit sell, trigger $95, limit $94.60:
- Only the 30 units bid at $94.80 are at or above your limit, so 30 units fill.
- The remaining 70 units stay open. If the price keeps falling to $90, their loss is 70 × ($100 − $90) = $700, on top of the 30 × ($100 − $94.80) = $156 already realized.
The stop-limit protected the price on the part that filled but left most of the position exposed. That is the core trade-off.
Sizing a trade around the stop
A stop-loss is most useful when the position is sized from it:
Position size = risk amount ÷ (entry price − stop price)
Example: a $10,000 account risking 1% per trade ($100), entering at $100 with a stop at $95:
- $100 ÷ $5 = 20 units, or $2,000 of notional
If slippage is likely, size for a slightly worse exit than the stop. The position size calculator and stop-loss calculator do this arithmetic, and the risk-reward calculator compares the stop distance with your target.
Trigger price type: last vs mark
On derivatives exchanges, you can often choose what price triggers the stop:
- Last price: the most recent trade on that exchange. A single large trade or brief spike can trigger it.
- Mark price: a smoothed fair price, usually derived from the index of spot prices across several exchanges. It is less prone to short spikes.
Liquidation on most derivatives exchanges uses the mark price. See mark price vs index price.
Stop-loss vs liquidation
A stop-loss is your exit; liquidation is the exchange's. With leverage, the stop must sit between your entry and the liquidation price, with room to spare. If a long's stop is below its liquidation price, the exchange closes the position first, usually with an extra liquidation fee.
Stops in hedged and arbitrage trades
In a delta-neutral position, such as spot long plus perp short, a stop on one leg can be harmful. If the short leg's stop triggers during a rally, you are left long spot with no hedge, exactly when the market is moving fastest. Hedged traders usually manage risk by keeping leverage low and topping up margin rather than placing stops on individual legs. If they use stops, they typically close both legs together.
Trailing stops
A trailing stop follows the price by a set distance or percentage. For a long with a 5% trail, if the price rises from $100 to $120, the trigger moves from $95 to $114. If the price then falls to $114, the stop triggers. Trailing stops are usually stop-market orders, so they carry the same slippage risk.
Common mistakes
- Placing stops at obvious round numbers. Many stops cluster there, and sharp moves often run through those levels.
- Stops too tight for normal volatility. Routine price noise triggers them before the trade has room to work.
- Using stop-limits in crashes. The limit can be skipped, leaving the full position open.
- Forgetting to make stops reduce-only. A stop can accidentally open a new position.
- Moving the stop further away when price approaches it. This turns a planned small loss into an unplanned large one.
How ArbTide helps
Use the stop-loss calculator to set stop levels from your risk, and the liquidation price calculator to confirm the stop triggers well before liquidation.
Frequently asked questions
- What is a stop-loss order?
- A stop-loss is a conditional order that closes a position once the price reaches a trigger level you choose. It limits how much you lose on a trade if the market moves against you.
- What is the difference between a stop-market and a stop-limit order?
- When triggered, a stop-market order becomes a market order and fills at the best available price. A stop-limit order becomes a limit order, so it will not fill worse than your limit price but may not fill at all.
- Why did my stop-loss fill below my stop price?
- A stop-market order becomes a market order when triggered, so it fills at whatever prices are available. In a fast or thin market, those prices can be well past the trigger, which is slippage.
- Should my stop-loss be above my liquidation price?
- For a long, the stop should trigger before the liquidation price is reached, with some buffer. A stop set beyond the liquidation price will never help, because the exchange liquidates first.
- What is a trailing stop?
- A trailing stop moves the trigger price automatically as the market moves in your favor, keeping a fixed distance or percentage behind the best price reached. It locks in gains while still limiting losses.