Understanding the Trailing Stop Order
A trailing stop is a dynamic order type designed to protect profits and limit losses. It automatically adjusts the stop-loss price as the market price moves in a favorable direction. The stop order follows the last traded price, maintaining a pre-set distance.
This mechanism allows traders to lock in gains while giving a position room to grow.
How a Trailing Stop Works in Practice
Consider a trader who opens a long position in BTCUSD at $8,000 and sets a trailing distance of $500.
- If the price never rises above $8,000, the trailing stop acts like a standard stop-loss and triggers at $7,500.
- If the price rises to $8,500, the stop-loss price automatically moves up to $8,000, maintaining the $500 gap.
- If the price continues to climb to $9,000, the stop-loss moves up to $8,500.
Essentially, the stop-loss continuously trails the market price by the fixed amount you specify, securing unrealized profits as the trend continues.
How to Set Up a Trailing Stop
Traders can attach a trailing stop to an open position. A key feature is the optional trigger price, which activates the trailing stop only once a certain profit level is reached.
Example Scenario:
The current last traded price (LTP) is $7,000. A trader holding a long position wants a trailing stop with a $100 distance, but only if the price reaches $8,000.
- The trader sets the trigger price to $8,000 and the trailing distance to $100.
- Once the LTP hits $8,000, the trailing stop is activated. Its initial stop-loss level will be set at $7,900 ($8,000 - $100).
This strategy ensures the trailing mechanism only begins once the trade is in profit, protecting initial capital first.
Comparing Perpetual Contract Types
With the advent of various trading instruments, understanding the difference between Inverse and USDT Perpetual contracts is crucial for effective portfolio management.
What is an Inverse Perpetual Contract?
Inverse contracts use cryptocurrencies like BTC, ETH, EOS, or XRP as the base currency. When trading, you denominate your trade size in USD, but all margins, profits, and losses are calculated and paid in the underlying base crypto.
- To trade BTCUSD contracts, you must use BTC as collateral.
- To trade ETHUSD contracts, you must hold ETH.
This means your profit and loss are directly influenced by the value of the cryptocurrency you’re using as margin.
USDT Perpetual Contracts Explained
USDT Perpetual contracts, also known as linear contracts, use the Tether (USDT) stablecoin as the base currency for margin and settlement. This creates a more straightforward trading experience compared to inverse contracts.
Key differences include:
- Simplified P&L Calculation: Your profit and loss are directly measured in USDT. If you trade 1 BTC and the price moves by $100, your gain or loss is exactly 100 USDT. The P&L chart is a linear line, making it easier to understand.
- Stablecoin Margin: Using USDT as collateral shields you from the volatility of holding crypto assets like BTC or ETH. Your margin's value remains stable, allowing you to focus purely on your trading strategy without the need to hedge against margin value fluctuation.
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A Guide to Bybit's CoinSwap Feature
The CoinSwap function addresses a key constraint of inverse contracts: the need to hold specific cryptocurrencies as margin. It allows traders to seamlessly exchange between supported assets—BTC, ETH, EOS, XRP, and USDT—directly within the platform.
This enhances convenience and saves on external transfer fees.
How to Execute a CoinSwap
Step 1: Navigate to Assets
Go to your account's Assets page and select the "Assets Exchange" option.
Step 2: Get a Quotation
- Select the coin you wish to swap from and the coin you want to receive.
- Enter the amount you want to convert, either manually or by using the percentage buttons.
- Click “Get Quotation” to see the current conversion rate, which is based on the market's index price.
Step 3: Confirm the Exchange
- A pop-up will appear showing the real-time exchange rate at that exact moment.
- Confirm the transaction to complete the swap.
Critical Note on Exchange Rates: The rate applied is the real-time rate at confirmation, not the initial quote. If this real-time rate deviates by more than 0.5% from the quoted rate, the transaction will be automatically canceled to protect you from unfavorable splits.
Important Considerations for CoinSwap
- A fixed fee is charged per exchange transaction. Because you avoid external network (miner) fees, swapping larger amounts becomes more cost-effective on a percentage basis.
- Bonus balances cannot be converted into other coins.
- Account holders are subject to per-transaction and 24-hour exchange limits.
Frequently Asked Questions
What is the main advantage of a trailing stop?
A trailing stop automatically locks in profits as the market price moves favorably. It removes the emotional difficulty of manually moving a stop-loss and helps protect against sudden market reversals by securing gains.
Should I use USDT or Inverse perpetual contracts?
Your choice depends on your strategy and portfolio. Use USDT contracts for simplicity, stable margin value, and direct USDT-denominated P&L. Choose Inverse contracts if you prefer to use your existing crypto holdings as margin directly.
How does CoinSwap benefit a trader?
CoinSwap offers convenience and cost efficiency. It allows instant conversion between supported assets without withdrawing and depositing funds across different exchanges, saving time and transaction fees, especially on large swaps.
Is the CoinSwap rate guaranteed?
No, the rate is not guaranteed. The initial quote is an estimate. The final rate is determined at the moment you confirm the transaction. A 0.5% slippage protection mechanism automatically cancels orders if the rate moves unfavorably beyond that threshold.
Can I use a trailing stop as a take-profit order?
Not directly. A trailing stop is a risk management tool designed to exit a position. However, by securing profits as the price rises, it effectively allows you to capture gains without predicting a specific top, functioning similarly to a dynamic profit-taking mechanism.
Are there fees for setting a trailing stop order?
No, placing a trailing stop order itself is typically free. Fees are only incurred if the stop order is triggered and becomes a market order to close your position, at which point standard trading fees apply.