Stop-Loss Basics for Beginners: How to Cap a Loss
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A stop-loss is an instruction to sell automatically if the price falls to a level you chose in advance, so a bad trade has a limit you set while calm instead of one you improvise while stressed. It does not guarantee the price you get and it does not make a trade safe; it is a tool for deciding your exit before you enter. This page explains the idea in plain terms. It is not investment advice and says nothing about what to buy.
How Does a Stop-Loss Order Work?
You set a trigger price below your entry. While the market trades above it, nothing happens. When the price reaches the trigger, the exchange places a sell order for you. What that order does next depends on its type, which is the part beginners usually miss.
Stop-Market or Stop-Limit?
| Type | After the trigger | Main trade-off |
|---|---|---|
| Stop-market | Sends a market order | Almost certain to fill, but at whatever price is available (slippage) |
| Stop-limit | Sends a limit order at the limit price you set | Controls the price, but may not fill if the market jumps past it |
This is the same trade-off as in limit vs market orders: certainty of execution against certainty of price. In a fast drop a stop-limit can sit unfilled while the price keeps falling, and a stop-market can fill well below your trigger.
Where Do You Put the Stop?
- Decide it before you buy, at a level that would show your reason for the trade was wrong, not at a round number you picked at random.
- Not so tight that normal price swings trigger it, and not so far that one loss hurts more than you planned.
- Work out the position size from the stop, not the other way round: the further the stop, the smaller the position for the same amount at risk.
- Do not move the stop further away after the price approaches it. That removes the very limit it was meant to give you.
What Does a Stop-Loss Cost?
Setting one is free, but when it triggers it becomes a normal order and pays a normal trading fee: a stop-market is a taker order, while a stop-limit that rests on the book can qualify as a maker order. Fee levels differ by exchange, so compare them on spot fees and read maker vs taker fees for the difference. Through coinport's sign-up links, trading fees on the exchange are 20% lower; that applies to trading fees only, not to withdrawal or network fees.
Spot Stops vs Futures Stops
On spot, a stop-loss only limits how much a coin you own can lose. With leverage the same price move is magnified and a position can be closed by the exchange before your stop is reached. If you trade futures, read spot vs futures for beginners and futures fees first. Not every exchange offers the same stop order types, so check the order form on the exchange you use. To size the position from your stop, see the 1% risk rule, and for where the exchange would close a leveraged position, leverage and liquidation price explained.
Frequently Asked Questions
Does a stop-loss guarantee I will sell at my trigger price?
No. A stop-market order sells at the best available price after the trigger, which can be lower than the trigger in a fast market. A stop-limit order controls the price but may not fill at all if the market moves past your limit.
Is a stop-loss free to use?
Placing one is normally free. When it triggers it becomes an ordinary order and the exchange charges its usual trading fee, taker for a market order and maker or taker for a limit order depending on whether it rests on the order book.
Should I use a stop-loss on every trade?
That is your decision, and this page is not advice. The useful habit is choosing your exit level before you enter, whether or not you place it as an automatic order.