A stop market order is a trading tool that automatically executes a buy or sell order at the current market price once your pre-set stop price is reached.
This type of order is particularly useful in fast-moving markets, where you want to secure your position without delay. However, the final execution price may vary depending on market conditions.
Key features:
- Guarantees execution but not the exact price.
- Ideal for exiting a trade quickly or entering during volatile market conditions.
How it works:
- Set a stop price for the trade.
- Once the stop price is hit, the order becomes a market order.
- The trade executes at the best available price.
Example: You hold Bitcoin and set a stop price at $30,000.
If the market falls to this level, your order will automatically sell your Bitcoin at the current market price.
When to use a stop market order:
- To sell an asset quickly when the price drops below a certain level, limiting potential losses.
- To buy an asset once it rises to a target price, ensuring entry into an upward trend.