In a volatile market like crypto, investors always look for ways to protect their assets. In this market, just like any other, nobody wants to lose money. Consequently, it’s essential to introduce a price floor for the value of your assets.
These situations can benefit from stop-loss orders or portfolio stop losses. However, some people have trouble figuring out where they should set their prices. If you set them up too far away, you could lose a lot of money in a tragic scenario.
Our quick guide will explain the difference between the two strategies traders can employ to protect their portfolios. Understanding the peculiarities of stop-loss orders and portfolio stop losses is fundamental for every trader.
The Idea Behind a Stop-Loss Order
An order to sell assets at a predetermined price is a stop-loss order. These orders assist investors in reducing the potential loss they may face while trading. For example, if you placed your threshold of 5 percent below the purchase price, you might limit your loss to 5%.
Many alternative stop and limit orders exist based on the market timing strategy you are using. However, we can identify two main types of stop-loss orders, as we explain in the following subsections.
An order to purchase or sell a coin when its price reaches a certain level is a “stop order.” Once the token comes to a stop order’s price, it automatically becomes a market order.
Purchase stop orders have a stop price above the current market price. Generally, a short seller’s stop order can restrict a potential loss or safeguard an established profit. Indeed, shorting a coin can create significant losses if its price increases, which explains the popularity of stop orders.
An order to sell at a price lower than the latest market price is a sell stop order. A sell-stop order is helpful for anyone going long on a coin and fearing sudden market crashes.
Trailing Stop Order
A trailing stop order happens when the trader does not determine a fixed stop price. Instead, a preset percentage or dollar amount is the system’s value to close a position.
With constant updates, the trailing stop price follows the coin’s market price. So, for example, if the coin price moves up, will the stop price (and vice versa).
In other words, a trailing stop order makes a classic stop order “dynamic.” Therefore, this mechanism can be particularly efficient if you do not have a fixed price threshold on your mind.
Extending the Concept to All Your Assets: Portfolio Stop Loss
Stop-losses are a common choice when managing a trading strategy on a single market pair. But what about portfolio stop losses? In this case, we’re talking of a system looking at the whole portfolio value of a trader.
Forget about individual coins; portfolio stop-losses act on all your coins in a lousy market scenario.
A system will convert all the investors’ funds to a stablecoin. It is less likely that a portfolio would continue to fall if an algorithm converts it into stablecoin.
Using Portfolio Stop Losses with Shrimpy
Popular platforms such as Shrimpy allow you to use the portfolio stop-loss mechanism. In addition to offering portfolio stop-loss functionality, Shrimpy is a social trading and automated portfolio management solution.
Stop-losses for a portfolio are different from those for individual coins since they monitor the overall value of your assets. Shrimpy will convert all your portfolio into a single stablecoin if the market reaches the determined stop-loss level.
Capturing earnings and preventing losses are two of the primary goals of this strategy.
In Shrimpy’s “Automation” tab, we may configure our stop-loss. The system automatically triggers the mechanism when its value crosses a predetermined threshold. On this page, we will find several parameters:
- A Threshold consists of the percentage value Shrimpy will use to trigger your stop-loss. Shrimpy only applies the strategy in the time you define (as we explain below).
- The time period lets you tell Shrimpy the time horizon you would like to apply in the stop-loss system.
- Finally, you can indicate the stablecoin you want Shrimpy to purchase on your behalf with this strategy. You can insert this information in the currency field on your screen.
The portfolio automation will halt in Shrimpy after the stop-loss activation. In other words, converting your portfolio into a stablecoin will stop every automation.
It will only be up to you to resume trading when you feel it is the right time. Just click on “Start Automation,” and the standard trading process on Shrimpy will begin once again.
Our guide illustrated the difference between stop-loss orders and the portfolio stop-loss system intuitively. While the former considers our single trades, the latter uses our entire portfolio to limit losses.