Stop Loss for Bitcoin in Volatile Times

SFOX
Feb 4, 2016 · 5 min read
Markets in a storm. Image courtesy of: Flickr/VanGorkum Photography.

Lately the world markets have been bumpy, to say the least. Apple makes $75.9B in revenue but it was less than expected and its stock price dropped. Iran’s oil is expected to come onto the markets increasing supply, oil prices dip even lower. That is bad for Tesla but should that not be good for consumers overall, saving them money which they may potentially use to buy more things with? The markets didn’t think so as most stocks seem to be trending in the red as of late. And then a negative article comes out about Bitcoin by a once-passionate evangelist and the next day… you guessed it: btc prices are lower and by 10%.

Ugh, as they say.

Feels like these kind of days in the markets right now.

What can you do to protect yourself from losses, especially when you aren’t online because you are watching NFL football, on a steamy date, or simply making yourself a sandwich?

Set a floor price.

On SFOX, our Stop Loss algorithm works across all the Bitcoin exchanges we connect with, even if the individual exchanges themselves don’t support it.

Decide what is the maximum price decrease you are willing to stomach and then create a Stop Loss order to have the system limit your downside by automatically selling Bitcoin if the price drops below your comfort zone.

On SFOX, you can easily set a floor price for your Bitcoin in our trade platform through the Stop Loss algorithm.

SFOX’s Stop Loss Algorithm protects you during volatile market conditions.

How to Use Stop Loss on SFOX:

  1. Login to your account on sfox.com and go to the trade screen.
  2. Set the marker to SELL
  3. Choose the “Stop Loss” algorithm

4. Input the Trigger Price (as price per Bitcoin).

5. Enter how many Bitcoins (or fractions of Bitcoins) you want to sell at that price.

6. Hit Sell Coins.

Boom. You’re set.

What the heck is Stop Loss?

Stop Loss is, as its name implies, a trigger to stop your losses. For example, if Bitcoin is at $400 and you create a Stop Loss order to sell 1 Bitcoin for $380 (the Trigger Price), then SFOX will monitor Bitcoin prices and activate a sell order for your 1 Bitcoin if any of these three scenarios occur:

a.) Bid reaches the trigger price;
b.) the Ask reaches the trigger price;
c.) an Index reaches the trigger price.

This is useful in a number of situations such as when markets are volatile and when you aren’t around but want to limit your exposure in the event of a price drop.

In the above example, once the price of Bitcoin hits $380, our goal will be to sell the amount of Bitcoin you specified as quick as possible. By the time the sell order is completed, the price may be higher or lower (or much lower in volatile markets) than $380. You are not guaranteed the trigger price but we will seek to get you the best possible price across our exchanges.

The benefit with Stop Loss is that even when you aren’t actively trading and watching Bitcoin prices, you have conditions setup to limit your losses in case of a drop — such as in the middle of the night. Afterall, Bitcoin doesn’t keep 9:30am to 4pm exchange hours and instead trades 24/7. Literally.

What are the risks of Stop Loss?

When deciding on setting the Trigger Price, keep in mind that Bitcoin can be very volatile. In fact, in a one minute period, the price can fluctuate 20% (see the chart below). If you set a trigger price that is too close to the current price, your sell order might get executed and yet the price may come back up right away. There is no hard and fast rule as to how to set the Trigger Price — an active trader might set the trigger price 10% below the current price while a passive trader might set the trigger price at 30% below the price.

As mentioned above, the trigger price activates a trade order but the price you end up getting for the Bitcoin you requested to sell may very well be lower than the trigger price, such as in volatile markets.

For some reference: here are the most volatile minutes in Bitcoin trading over the last two months.

BTC Volatility: The btc price in one minute went as low as $347.50 to as high as $459.81 — that is a $112 difference! (We are preparing a whole series of blog posts on Bitcoin volatility and ways to manage it.)

Tried and Tested: Stop Loss

Stop Loss is a very old feature in other markets but most Bitcoin exchanges don’t support it. Yah, you interpreted that correctly: if you weren’t online and paying attention at the time the price dropped… well… pray it comes back up soon. I hear some people are still waiting for Bitcoin to go back up to $1300 (gulp).

SFOX’s Stop Loss order will work across all exchanges that we connect with through our trading platform, even if an individual exchange itself does not offer stop loss orders directly. As the SFOX trading platform works across exchanges, if we see a price on one exchange hit your trigger price, we will activate the sell order. We will still look across the globe for an exchange that offers the highest price for your Bitcoin as we optimize to sell quickly and protect your losses.

This is just an additional way that our approach of aggregating exchanges benefits you as the trader — you have the holistic perspective on global Bitcoin prices and you will always see and have access to the best prices for your trades.

And coupled with Stop Loss, hopefully this will let you sleep a whole lot better, especially in these ugh times.

***

Still can’t sleep at night? Try the Sleep with Me podcast: http://www.sleepwithmepodcast.com/

It is so dry and monotonic, it is guaranteed to put you to…zzz…

SFOX Edge

Crypto analysis from SFOX, the premier crypto trading venue.

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The advanced #Bitcoin trading platform for advanced #Bitcoin traders. Our algorithms ❤ volatility. Backed by @YCombinator.

SFOX Edge

Crypto analysis from SFOX, the premier crypto trading venue.

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