Take profit (TP) and stop-loss (SL) are essential trading strategies that allow you to automatically "take profit" or "stop loss" at a predetermined price. By using these tools, you can engage in momentum trading or limit your losses in a volatile market. They help you exit a position systematically, thereby managing risk and securing gains.
You can set a predefined trigger price and an order price to cap potential losses and reduce trading risks. Once the market price hits your specified trigger price for either take profit or stop-loss, the order is placed automatically at your chosen order price.
There are two primary types of TP/SL orders: stop orders and trigger orders. The key difference between them is that a trigger order does not lock up your margin or existing positions.
Why Using TP and SL Is Necessary
Take profit and stop-loss are powerful risk management instruments. When prices move against your position and you start to lose money, stopping your losses in time prevents those losses from accumulating further. Conversely, when prices fluctuate in your favor, a take profit order can help you lock in gains. Effectively using TP and SL is one of the most important tactics for controlling risk during trading.
Key Considerations When Setting TP/SL
- If the market price never reaches your trigger price, your order will not be placed.
- If the order is executed, your existing position will be closed, or a new one will be opened, depending on how you configured the TP/SL. If the order does not execute, your position and margin will remain unchanged.
- Once the order condition is triggered and the order is placed, the system will use the best available limit price—either the highest or the lowest at that moment—to fulfill the order based on the user-set price limit rule. For comprehensive details on how this works, 👉 view the complete price limit rules.
Scenarios Where TP/SL Triggers Might Fail
- Exceeding Position Limits: If the value of your TP/SL position surpasses the maximum set limit, the order will fail.
- High Market Volatility: During periods of extreme market fluctuation, a TP/SL order may not be executed immediately. This is because these orders use the market price to place the order after the trigger. If you need to close all positions quickly, you can manually select a position and click "Close All."
- Conflicting Orders: If there are open orders in the opposite direction in your order list (excluding reduce-only orders), they might open a new position after your TP/SL order is triggered. This can sometimes cause a margin check to fail, resulting in the TP/SL order not being executed.
Frequently Asked Questions
What is the main difference between a stop-loss and a take profit order?
A stop-loss order is designed to limit your loss on a position by automatically selling if the price falls to a certain level. A take profit order does the opposite; it automatically sells the asset when the price rises to a predetermined level to secure your profits. Both are crucial for disciplined trading.
Can I modify or cancel a TP/SL order after it's placed?
Yes, you can typically modify or cancel a take profit or stop-loss order as long as it has not yet been triggered by the market price. Once the trigger price is hit and the order is activated, it cannot be canceled.
Why didn't my stop-loss order execute at the exact price I set?
A stop-loss becomes a market order once triggered. In fast-moving or illiquid markets, the actual execution price might be different from your stop price (a situation called slippage). This is why the final closing price can sometimes be worse than expected.
Is it better to use a stop-loss or a trailing stop-loss?
A standard stop-loss is set at a fixed price. A trailing stop-loss, however, follows the market price upward (for a long position) and only triggers a sale if the price falls by a set percentage or amount from its peak. Trailing stops are excellent for capturing upward trends while protecting profits.
Do all trading platforms and assets support TP/SL orders?
While most major cryptocurrency and stock exchanges support basic take profit and stop-loss functionality, it's essential to check your specific platform's capabilities. Support can vary for different asset types like futures, margin trading, or spot markets.
How do I determine the right levels to set my TP and SL?
Setting these levels is a strategic decision often based on technical analysis. Traders might use support and resistance levels, volatility indicators like Average True Range (ATR), or a fixed risk/reward ratio (e.g., aiming for a profit three times the size of the potential loss).
This article is provided for informational purposes only. It is not intended to offer investment, tax, or legal advice and should not be construed as a solicitation to buy, sell, or hold any digital assets. Digital asset investments, including stablecoins, involve a high degree of risk, can experience significant volatility, and may even become worthless. You should carefully consider whether trading or holding digital assets is suitable for you in light of your financial condition. Please consult a legal, tax, or investment professional for advice tailored to your specific circumstances.