With Kwenta Smart Margin v2 deployed, we are excited to bring back advanced orders. This again brings us closer to feature parity with tools available across existing exchanges and allows for advanced strategies and improved risk management. Stop-loss orders help to protect traders from losing more money than they are willing to risk, while limit orders allow traders to set an optimal price they are willing to accept for a trade.
In order to execute onchain advanced orders, traders will need to have .01 ETH deposited for their margin accounts keeper. This will be done automatically when you place an advanced order. This balance will continuously be brough back to a .01 ETH anytime a new advanced order is placed and the balanace is below .01.
What are Limit Orders?
Limit orders offer traders freedom & peace of mind when it comes to how they trade. They allow you to set the price at which you are willing to buy or sell an asset rather than taking the current market price. This can be helpful when you are looking to buy an asset below its market price if intentions are to go long or sell an asset above its market price if intentions are to go short.
Limit orders are a great way to avoid buying or selling too early or too late or having to be at your screen all day to trade. Kwenta limit orders will execute when the oracle price reaches at or below a specified price when going long or above or at a specified price when going short.
NOTE: Currently all advanced orders are triggered againt the Chainlink price which may differ from the displayed Pyth Oracle Index or adjusted Skew Price (Kwenta Price).
Limit Order Example
ETH-USD is currently trading at $1,300
Alice thinks there’s a chance that the price of ETH-USD gets to $800. Due to this possibility, Alice places a limit order to buy ETH-USD at $800. Once the oracle price drops to or below $800, the limit order triggers, and a market order is executed. This means Alice gets to buy ETH-USD for $800 instead of $1,300.
Several limit orders can be submitted per asset per contract at any time.
Limit orders can also be used to close out positions. After entering a long position at $800, Alice thinks the price of ETH-USD will reach $4,000. In anticipation of this Alice opens a limit order to sell or close the trade at $4,000. Once the oracle price goes above the $4,000 price point, the limit order will trigger a market order, locking in profits without having to monitor the market or manually close the trade.
What are Stop-Loss Orders?
Stop-loss orders offer traders the opportunity to protect themselves from large losses. When setting a stop-loss order, you set the price at which you are wanting to exit a position. If the market value of the asset falls below (when long) or above (when short) this price, the order will be executed, and the trader will be able to sell the asset at the set price.
In order to remain profitable, traders need to be able to manage risk. Stop losses help traders achieve this by automatically closing unprofitable positions and cutting losses before they deplete all available margin. This order type can also protect already achieved profit, by setting a stop-market order above an entry price.
Stop-Market orders can also be used to enter positions in the market above or below a price point, depending on the direction of the trade.
Cutting Losses: Stop-Market Example
Alice is long 1 ETH with an average entry price of $800. Alice anticipates that the market will remain on an upward trajectory as long as the $800 price holds.
To manage your risk and prevent the position from losing more than $200, Alice sets a stop loss at $600. Alice can rest easy knowing the maximum loss he will be exposed to is $200 regardless if he actively monitoring his trade or not.
Entering a Position: Stop-Market Example
Using the above example, Alice also thinks that if ETH-USD breaks above the $1,400 price market will continue to trend. Alice can now place a stop market order at $1,400 to ensure a market buy occurs once the price reaches above the $1,400 point.
Stop-Market orders are dual-purpose and can be used to exit profitable or unprofitable positions at a certain price point or open new positions once a price barrier has been breached.
What’s Next?
Smart Margin contracts enable traders to take advantage of opportunities in the market by opening new order types stop-market and limit orders. This gives them the control they need while also limiting their exposure to potential losses. By matching the features of centralized exchanges, Kwenta is moving closer to its goal of providing a comparable trading experience with a DeFi twist. Moving forward, Kwenta will focus on Delegative Trading, deeper integrations offering more advanced tooling for other Kwenta offerings, upgrades to our staking contracts, the python SDK and more.
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