Take-profit and stop-loss orders are essential risk management tools for traders. A take-profit order allows you to lock in gains, especially during volatile market conditions, while a stop-loss order helps limit potential losses.
Understanding Order Types: Take-Profit/Stop-Loss vs. OCO vs. Conditional Orders
Take-profit/stop-loss orders share similarities with conditional orders but differ in key operational aspects:
| Order Type | Asset Allocation Status |
|---|---|
| Take-Profit/Stop-Loss | Assets are allocated immediately upon placing the order, even before it is triggered. |
| One-Cancels-the-Other (OCO) | Due to its structure, an OCO order only allocates margin for one side of the trade. |
| Conditional Order | No assets are allocated until the trigger price is reached. Asset allocation occurs only after the order is activated. |
How Spot Take-Profit and Stop-Loss Orders Work
1. Placing Orders Directly from the Trading Interface
You can set the trigger price, order price (for limit orders), and order quantity when placing a take-profit or stop-loss order. Assets are allocated immediately upon order placement. Once the last traded price hits your preset trigger price, a limit or market order is automatically placed based on your parameters.
- Market orders are executed immediately at the best available market price.
- Limit orders are submitted to the order book and await execution at the specified order price. If the best bid/ask price is better than your limit price, the order may fill immediately at that improved price. However, limit orders are not guaranteed to execute, as they depend on price movements and order book liquidity. Traders should exercise caution accordingly.
Practical Examples
Assume the current BTC price is 20,000 USDT. Below are several scenarios illustrating different trigger and order price combinations.
| Order Scenario | Outcome |
|---|---|
| Stop-Loss Market Sell Order Trigger: 19,000 USDT Order Price: N/A | When the last traded price hits 19,000 USDT, the stop-loss triggers and a market sell order is placed, executing immediately at the best available price. |
| Take-Profit Limit Buy Order Trigger: 21,000 USDT Order Price: 20,000 USDT | When the price reaches 21,000 USDT, the order triggers. A limit buy order with a price of 20,000 USDT is placed on the order book and will fill if the price reaches that level. |
| Take-Profit Limit Sell Order Trigger: 21,000 USDT Order Price: 21,000 USDT | Upon trigger, if the best bid is 21,050 USDT, the order immediately fills at this better price. If the price drops below 21,000 USDT, the limit order enters the book awaiting execution. |
2. Presetting Take-Profit/Stop-Loss with a Limit Order (UTA Only)
Beyond placing a simple limit order, users can pre-set a take-profit or stop-loss order. Once the initial limit order is filled, corresponding take-profit and stop-loss orders are automatically placed based on your preset prices and specified quantities.
This method follows the logic of a One-Cancels-the-Other (OCO) order, meaning only margin for one side of the trade is allocated. Users can set both take-profit and stop-loss orders as either market or limit orders for a single asset. The execution of one order automatically cancels the other. It is crucial to understand that for preset limit orders, the corresponding OCO order is canceled as soon the limit order is triggered—even if it hasn't been filled yet.
In some cases, a price rebound could prevent your triggered limit order from filling, while the other, now-canceled order, is no longer available.
Example
User A places a limit buy order for BTC at 40,000 USDT. They pre-set the following parameters:
- Limit Order Price: 40,000 USDT
- Order Quantity: 1 BTC
- Take-Profit Limit: Trigger price 50,000 USDT, Order price 50,500 USDT
- Stop-Loss Market: Trigger price 30,000 USDT
Assuming the BTC price reaches 40,000 USDT and the limit buy order is filled, the take-profit and stop-loss orders are activated.
Scenario 1: The price rises to 50,000 USDT, triggering the take-profit order. A limit sell order at 50,500 USDT is placed on the order book. The stop-loss order is canceled.
Scenario 2: The price falls to 30,000 USDT, triggering the stop-loss order. A market sell order is placed, selling the 1 BTC at the best available market price. The take-profit order is canceled.
Important Notes:
— The ability to pre-set take-profit/stop-loss orders with a limit order is available only for Unified Trading Account (UTA) users.
— For a limit buy order with attached take-profit/stop-loss sell orders:
- The take-profit trigger price must be **higher** than the limit order price.
- The stop-loss trigger price must be **lower** than the limit order price.— For a limit sell order with attached take-profit/stop-loss buy orders:
- The take-profit trigger price must be **lower** than the limit order price.
- The stop-loss trigger price must be **higher** than the limit order price.— The order prices for take-profit and stop-loss cannot exceed the contract's price limits set for the trigger price. For example, if the BTC/USDT price limit is 3%, a take-profit/stop-loss buy order price should not exceed 103% of the trigger price, and a sell order price should not be lower than 97% of the trigger price.
— After a limit order is filled, if the trade value does not meet the minimum order requirement, the attached take-profit/stop-loss orders may fail to place or execute upon triggering.
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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 a trader's loss on a position by automatically selling if the price moves against them. A take-profit order does the opposite, closing a position to secure profits once a predetermined favorable price is reached.
Can I modify a take-profit or stop-loss order after it's placed?
Yes, in most trading interfaces, you can typically modify or cancel active take-profit and stop-loss orders before they are triggered, giving you flexibility to adjust your strategy as market conditions change.
Why might my limit stop-loss order not execute?
A limit stop-loss order will only execute at its specified price or better. If the market price gaps down rapidly, surpassing your limit price without trading at it, your order may not fill. This is known as slippage.
Is pre-setting orders with a limit available on all account types?
No, the feature to pre-set take-profit/stop-loss orders upon placing a limit order is typically only available for advanced account types like the Unified Trading Account (UTA) on many platforms.
What happens if both my take-profit and stop-loss prices are hit simultaneously?
In extremely volatile conditions, this is possible. However, due to the OCO (One-Cancels-the-Other) logic, the platform's system will usually execute the one that is triggered first and immediately cancel the other order.
Are there fees associated with placing these orders?
Generally, you are only charged a trading fee if the order executes. Placing an order that is later canceled or not triggered usually does not incur a fee, but you should always check your specific exchange's fee schedule.