Sometimes a stop-loss doesn't work the way you planned, even with the stop price decided in advance. The order was in place, yet after a sharp drop the position is still open; or a single wick on the chart takes you out.
Most of these come down to which kind of stop order you chose and which price triggers it. This article covers the difference between stop-market and stop-limit orders, the trigger price options, and what to check after the order is placed.
How do you place a stop-loss?
A stop-loss uses a stop order. Why not an ordinary limit or market order?
Say you place a sell limit below the current price to cut a long position's loss: that order doesn't wait; it fills at once. It's an offer to sell cheaper than the current price, so it gets filled right away.
That's why stop-losses use a stop order, a type of conditional order. A stop order works in two steps. First, it does nothing until price reaches the trigger price (the stop price) you set.
Once price reaches that level, it sends a pre-set order to the exchange. Whether that order is a market order or a limit order is what separates a stop-market from a stop-limit.
What are stop-market and stop-limit orders?
A stop-market order sends a market order once the trigger price is hit. It's almost certain to fill, but if price is moving fast it can fill at a worse price (slippage). A stop-limit order sends a limit order once the trigger is hit, so it fills only at your limit price or better.
Say you went long BTC at 100,000 USDT with a stop trigger at 98,000 USDT, and for the stop-limit version you set the limit at 97,900 USDT. But what happens if price drops quickly from 98,000 to 97,500 USDT? The outcomes split like this.
| Stop-market | Stop-limit | |
|---|---|---|
| Order sent after trigger | Market | Limit (97,900 USDT) |
| Fill price | Can be worse than the trigger | The limit price or better |
| If price drops to 97,500 USDT | Closed near 97,500 (about 2.5% loss) | Only a 97,900 sell order remains; the position stays open |
The stop-market loses a bit more than the planned 2%, and the position is closed. The stop-limit, however, protected its price, but the position stays open, so the loss keeps growing if price falls further. That's why a stop-market is the usual choice for a stop-loss that has to cut the loss.
How do you choose what triggers the stop?
When you place a stop order, you can fine-tune its trigger (the condition that sets it off). On exchanges such as Binance, for example, you can choose between the Last Price and the Mark Price.
The last price is the most recent trade on that contract; the mark price is an estimate of the contract's fair value, built from inputs such as spot prices across several exchanges. That said, the final fill price is set by the last traded price. Whichever price you choose for the trigger, the actual trade is decided by prices in the order book.
If the exchange you use is reliable and the futures contract offers deep liquidity, the last price can work in your favor. For small-cap altcoins or in highly volatile markets, though, the mark price can help the order go through more steadily. Be careful, however: the gap between the trigger price and the actual fill can be wider.
What is price protection?
Futures exchanges usually have a Price Protection feature. When the last price and the mark price diverge beyond a set threshold, it prevents stop-loss and take-profit orders from triggering. Binance says such orders expire in that case.
It guards against stops firing on abnormal spikes, but it also means your stop order can disappear at that moment. It's on by default for new users, and USDⓈ-M and COIN-M futures can each be configured separately.
What should you check after placing your stop?
It's best to leave your stop some room from the liquidation price. Have you placed your stop order? Then check these three things.
- Is the stop actually listed in your open orders?
- Does its size match the position?
- Is the liquidation price on the position screen farther away than your stop?
Turning on Reduce-Only or the close-position option also keeps a leftover stop from opening a new position in the opposite direction after the original one is already closed.
FAQ
Does a stop-loss order cost a fee just by sitting there?
No. Fees apply only when it triggers and fills. A stop-market fills as a market order, so it pays the taker fee.
Does my stop-loss stay in place if I close the app?
A stop order placed on the exchange lives on the exchange's servers, so it stays even if you close the app or browser. It does disappear if it expires under price protection or you cancel it, so be sure to check your open orders.
Sources
- Binance, Types of Order on Binance Futures
- Binance, What Is a Stop Market Order?
- Binance, How to Place Stop Loss and Take Profit Orders on Binance Futures
- Binance, What Are Stop Orders in Binance Futures?
- Binance, How to Enable the Price Protection Function
- Binance, Binance Futures Launches Price Protection Function