Introduction to Take Profit and Stop Loss (TP/SL) in Futures Trading

● This article will introduce the TP/SL feature of futures trading in detail and answer the most common questions about TP/SL orders.

● This article focuses on how the TP/SL feature works on Bitget.

● Whether you're a beginner or an experienced trader, TP/SL can improve the efficiency and safety of your trading experience.

What is TP/SL?

Take profit (TP) refers to a common futures trading operation where users close their positions when the price of a position rises/falls to a certain value to convert unrealized profits into realized profits. Stop loss (SL) refers to a common futures trading operation where users close their positions when the price of a position rises/falls to a certain value to prevent further losses.

In essence, TP/SL is a basic strategy to protect profits and manage risk. By setting a take-profit and a stop-loss price, we can ensure that we make profits when the market is favorable and limit losses when the market is unfavorable.

Let's say you buy Bitcoin at a price of 70,000 USDT. If you set your TP/SL based on the values shown above, this means that a take-profit order will be triggered when the price of Bitcoin rises to 75,000 USDT, and a stop-loss order will be triggered when the price of Bitcoin falls to 65,000 USDT.

Bitget allows users to set a TP/SL price in advance. When the latest market price reaches the specified price, an order will be placed at the best available price.

When should I use TP/SL?

TP/SL orders are usually used when users have open positions but do not wish to track market trends over time. In principle, as long as you hold a position, you can use TP/SL at any time according to actual demand. Note that TP/SL orders can only be used to close positions, not open them.

Note that TP/SL orders can sometimes fail to trigger in extreme market conditions, but this rarely happens in actual trading. More commonly, the actual filled price may differ from the price at which a TP/SL order was triggered during periods of extreme volatility and price fluctuations. There is also the possibility that TP/SL will not be fully or partially filled.

Additional information:

● The futures amount of TP/SL orders will be affected by the ADL, automated closure, liquidation, and manual closure of positions. If a position is closed, the corresponding TP/SL order will be canceled.

● Changes in the expected liquidation price due to manual margin adjustments may cause the execution of TP/SL orders to fail.

● Users can set up to 20 TP/SL orders.

● The TP/SL feature only applies to current positions.

Trailing stop (trailing stop-loss)

A trailing stop, also known as trailing stop-loss, is another kind of stop-loss order that allows users to place a pre-defined order when the market moves against or in favor of their trade. Trailing stop orders help users limit losses and protect profits during market fluctuations. They work by placing a preset order at a specific percentage away from the market price, allowing users to lock in profits if the price moves in a favorable direction.

As the market price moves in a favorable direction, the trailing stop adjusts accordingly and maintains a set distance in a specific percentage or amount from the market price. This allows users to retain their positions and continue to profit as the price moves favorably. However, if the price moves by a specific percentage in the opposite direction, the trailing stop will close the position at the market price. This helps limit losses and protect profits by closing positions when the price moves unfavorably.

If you buy ETH futures at a price of 100 USDT and set a trailing stop-loss as shown in the image above, then:

This trailing stop-loss order will be triggered when the price of ETH rises to 200 USDT, and the stop-loss price after triggering = the highest price of ETH after triggering × (1 – 20%). When the price of ETH drops by 20% from its highest point, the system will automatically sell ETH at the best market price.

If the trend of ETH moves as shown in the image above, the following events will occur:

February: When the price rises to 200 USDT, the trailing stop-loss order is triggered.

March: Although the price of ETH has declined, it fell short of the 20% trail variance, meaning that the user continues to hold ETH.

April: The price rises to 300 USDT, with a stop-loss price of 300 × (1 – 20%) = 240 USDT.

May: The price falls sharply, reaching 240 USDT, triggering an order to sell ETH at the best market price. At this point, the market price is 240 USDT, resulting in an investment profit of 240 – 100 = 140 USDT.

By selling to take profit when the price falls in May, we avoid losses when the price falls below 100 USDT in June, but also miss out on potential gains when the price rises to 300 USDT in July.

Conclusion

TP/SL and trailing stop-loss are powerful tools for investors and traders to achieve success. They help protect profits, control risk, and increase win rates in the market. TP/SL is a basic strategy to protect profits and manage risk. By setting a take-profit and a stop-loss price, we can ensure that we make profits when the market is favorable and limit losses when the market is unfavorable. The flexibility and adaptability of this strategy make it suitable for a variety of market conditions and trading styles.

Trailing stop-loss, on the other hand, is an advanced strategy that automatically adjusts the stop-loss price according to market changes to capture additional profits while protecting profits that have already been earned. This strategy enables traders to be more flexible, eliminating the need to constantly monitor the market while fully participating when market trends are favorable to avoid premature stop-losses.