After a huge price plunge, BTC price has stabilized at around $6,900 now. Ann believes that the market panic has been alleviated. She intends to enter the market when BTC rebounds further and stands firm. She finds $7,100 a signal of price breakout. However, Ann is worried about not getting timely updates on the market moves due to her recent busy schedule. What can she do to time the trade?
In this scenario, Ann is advised to use a Conditional Order.
Ann preset a Limit Order to buy 10,000 BTCUSD contract at $7,000, but it’s only triggered when market price rises to $7,100 and signals stronger market sentiment.
What is Conditional Order?
A Conditional Order is an order in which traders preset a specified “trigger price” as an activation, and the order will only be triggered when the condition is met. Conditional Order can be triggered by the last traded price, the index price, or the mark price.
A Conditional Order is not active until triggered, and thus imposes no margin requirement. When the condition is triggered, the order will turn active and request margin immediately. If your available margin is insufficient, the order will be rejected upon activation.
Types of Conditional Orders
You can choose to place Market Order or Limit Order when the condition is triggered.
Market Order: Once triggered, the preset buy or sell orders will be executed as Market Orders.
Limit Order: Once triggered, a buy or sell order (with preset quantity and price) will be placed as limit orders.
Common Application of Conditional Order
Traders often use conditional orders for stop loss,take profit and breakout strategies.
Stop Loss (SL): Stop loss is a closing strategy used to limit position losses. A position is closed upon reaching a certain loss amount or loss ratio. When using a Conditional Order to stop loss, the target stop price is usually set as trigger price. When triggered, a Limit Order or Market Order will be placed to close the position.
For example, assuming the current market price is $7,101.50, Jack holds 10,000 BTCUSD long contracts with entry price of $7,200. He is afraid that the BTC price would dip further. He decides to stop loss half of his position at $6,000.
Conditional Market Stop Loss: Set last traded price of $6,000 as the trigger price, and sell 5,000 BTCUSD contracts as a Market Order. The Market Order will close half of the positions instantly when the last traded price drops to $6,000 or below.
Conditional Limit Stop Loss: Set last traded price of $6,000 as trigger price, and sell 5,000 BTCUSD contracts at $6,000 as a Limit Order. The Limit Order will close half of the position when the last traded price drops to $6,000 or lower.
While both orders target to stop loss, the market conditional order is executed immediately when LTP hits $6,000, and it may stop at a price below $6,000. The limit conditional order is triggered when LTP hits $6,000, but if price falls instantly below $6,000, and limit order may be unfilled and stop loss may fail.
Take Profit (TP): It means that when the profit reaches a certain level, the trader chooses to realize the profit and exit from the market. Take profit can usually be achieved by setting a limit order. What if you want to take profit by a market order? You can set up a conditional market order and set your take profit price as the trigger price.
Using the same scenario, assuming that the current market price is $7,101.50, Jack holds 10,000 BTCUSD long contracts, and his entry price is $7,200. He expects the price to rebound. He targets to close half of his positions at $7,500.
Conditional Market Take Profit: Set last traded price of $7,500 as trigger price, and close 5,000 BTCUSD contracts as market order.
Compared to using TP/SL functions, you can execute on partial positions using conditional orders. You can also place conditional limit order to set different trigger and execution price.
Breakout: It allows traders to preset their entry conditions and enters the market when the price breaks through a resistance or support level.
BTC is traded at $6,900 now. Market sentiment is still in fear mode. Ann believes that $7,500 is a strong resistance level. If the price breaks through $7,500, she wants to catch the uptrend.
Thus, she set up a conditional order where she set last market price of $7,500 as the trigger price, to buy 10,000 contracts at $7,400 as limit order. Once the price reaches $7,500, a limit buy order will be placed, and it will get executed when price retreats to $7,400.
Similarly, Ann can also short BTCUSD contracts when the price falls below a support level at about $6,500.