Setting up your Litecoin trade is, of course, only half of the process. You’ll also need to decide when to close the position. As we have already mentioned, if you opened a sell order, then you close the trade with a buy order and vice-versa.
You can close a transaction at a time of your choosing, however, if you are still learning how to trade Litecoin then we would advise erring on the side of caution and setting what’s called a stop-loss order or take-profit order. Effectively, these are instructions to your broker to close the transaction at specific points and are an extremely useful tool for mitigating risk.
A stop-loss order means that your broker will close the position if the trade does not go your way. You might, for example, limit your losses to 5%. However, setting the stop-limit too low will not allow for any fluctuation in price, so you’ll want to leave a bit of breathing room here.
Take-profit orders are a similar idea, except they instruct your broker to close the trade when a specific price is reached.
- LTC/USD stands at $60.00
- You believe the price will go up, so put in a buy order
- You want to safeguard against losses of 5% or more
- This means you put a stop-loss order in at $57.00
- You also want to close your trade at a 10% profit
- As such, your take-profit order will be $66.00
- With these orders in place, the most you will lose is 5% and your best profit will be 10%.