Stop-loss orders are essential risk management tools that automatically sell your position when price drops to a specified level. On DEXs, stop-losses work differently than on centralized exchanges—understanding these differences is crucial for effective risk management.
How DEX Stop-Losses Work
Unlike CEX stop-losses that monitor order books in real-time, DEX stop-losses rely on:
- Oracle price feeds: Chainlink or other oracles trigger the stop
- Keeper networks: Decentralized bots monitor conditions and execute
- On-chain execution: When triggered, a swap executes on the DEX
DEX vs CEX Stop-Loss Differences
| Factor | DEX Stop-Loss | CEX Stop-Loss |
|---|---|---|
| Execution speed | Block time + keeper response | Near-instant |
| Slippage risk | Higher (AMM price impact) | Lower (order book depth) |
| Custody | You control funds | Exchange holds funds |
| Cost | Gas + keeper fees | Usually free |
Setting Effective Stop-Losses
Stop-Loss Placement Guidelines
- Volatile assets: 10-15% below entry (avoid noise)
- Stable pairs: 3-5% below entry
- High-conviction trades: Wider stops, smaller position
- Short-term trades: Tighter stops, accept more whipsaws
Key Takeaways
- DEX stop-losses use oracles and keepers—expect some execution delay
- Factor in slippage when setting your stop price
- Gas costs make very tight stops impractical on L1
- Consider L2s for more efficient stop-loss execution
- Alternative: Use limit orders for take-profit, manual monitoring for stops