Let's say I am looking to sell a Bitcoin on Coinbase if the price drops to a certain level. This sounds like a perfect use case for a stop limit order. So I set my stop price at the level that I want to sell at. Let's say $10,000. Next I have to choose my limit price.
I've noticed in my research that every article or video that I've come across about stop limit orders usually uses example stop and limit prices that are very close together (usually only a difference of a few dollars or cents).
In a highly liquid 24/7 market like Bitcoin, is there any reason to not set $1 as the limit for my sell order?
It seems advantageous to me for two reasons:
- I don't have to worry about a price gap skipping over my narrow stop/limit price range and causing the order to not execute.
- If I know that I want to exit the market when my stop price is reached I don't have to worry about my order being only partially filled.
Here's my understanding of how the situation would play out in a case where the stop price is reached:
- When a trade is executed at or below $10,000 my stop price has been reached and my stop limit order effectively turns into a market order.
- My order will start to be filled by matching with the highest bids in the order book (assuming those bids are over $1).
Here's what I would like clarification on:
- It seems that I could only end up selling my Bitcoin for $1 if the highest bid order on Coinbase was $1 and that sounds synonymous with Bitcoin being over entirely so what good would having set a higher limit do me in that case?
- If another person placed a stop limit sell order with a stop price identical to mine at $10,000 and a higher limit price of $2 one day before me, whose order would be fulfilled first? The order that was placed first or the order with the lower limit price?