A sell stop order is a pending order to sell an asset at a specified price or lower. The stop level in this case is set below the current market price. As long as the quote does not drop to the specified mark, the order remains inactive; as soon as the price touches the level, the order is executed. In this way the trader proceeds from the assumption that, after a certain boundary is crossed, the decline will continue.
A sell stop order is widely used in two scenarios. The first is protection against losses: the trader closes a position if the price moves below a comfortable level, limiting possible losses. The second is trading on a support breakout, when a market participant expects the decline to accelerate after an important level is overcome and seeks to open a short position or exit a long one.
As with other stop orders, the actual execution takes place at the available market price, which during sharp moves may differ from the stated price due to slippage. Proper placement of a sell stop order is an important element of discipline and capital management in the cryptocurrency market.
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