Stop loss is the trader's capital protection: a complete guide to take profit and stop loss orders

Stop loss is a risk management mechanism that closes a position when a loss threshold is reached. Along with take profit orders, it is a primary tool for professional trading on the spot cryptocurrency market. These two types of orders allow traders to automate entry and exit strategies and protect their capital from unexpected market movements.

What is a stop-loss and take-profit in spot trading

Take profit (TP) is an order that locks in profit when a target price is reached. The trader pre-determines the level at which they want to close a profitable position. When the current market price reaches this level, the order automatically triggers.

A stop-loss is no less critical — an order that closes a losing position to prevent further losses. This is especially important in volatile cryptocurrency markets. The trader can set a maximum acceptable loss and be confident that the system will automatically close the position if the price drops below a certain level.

Together, TP and SL form a complete risk management system: profits are secured at the top, losses are limited at the bottom. This allows traders to operate with a clear psychology and defined rules.

How stop-loss differs from OCO and conditional orders

There are several ways to work with TP and SL. Each method uses your trading assets differently and has its own features:

Direct TP/SL order — assets are reserved at the moment of order placement, even before the trigger is activated. This means they are not available for other trades.

OCO order (one cancels the other) — a more economical approach. Only half of the margin is used for the order. When you place an OCO, the system reserves funds for only one side, not both simultaneously. If one order triggers (for example, take profit), the other (stop-loss) is automatically canceled. You can learn more about OCO in специализированной статье.

Conditional order — the most cost-effective option. Assets are not reserved at all until the trigger price is reached. Only when the underlying asset’s price hits the set trigger price does the system reserve funds and place the order. This provides maximum flexibility in capital management.

How to properly set stop-loss and take-profit orders on Gate.io

Direct placement of TP/SL orders

The simplest way is to place stop-loss or take-profit orders directly from the trading zone. You can set:

• Trigger price — the price at which the order will activate
• Execution price — the price at which the limit order (or market order) will be placed
• Amount — the quantity of assets to trade

It’s important to understand the difference between the two execution types:

Market order executes immediately at the best available market price. It follows the IOC (Immediate or Cancel) principle — any portion that cannot be filled due to insufficient liquidity is automatically canceled.

Limit order enters the order book and waits for execution at your specified price. If the market bid/ask price is above (for selling) or below (for buying) your price, the limit order will execute immediately. Otherwise, it will wait. Be cautious: a limit order may not execute at all if liquidity is insufficient.

Preparing TP/SL in advance for limit orders

When placing a limit buy order, you can simultaneously prepare TP and SL orders. They will automatically activate after the main limit order is executed, following OCO logic — only one side uses margin. If the take profit order triggers, the stop-loss order is automatically canceled, and vice versa.

Examples of real execution scenarios

Suppose BTC is trading at 20,000 USDT. Here are some typical situations:

Scenario 1: Market order to sell

• Trigger price: 19,000 USDT
• When the price drops to 19,000 USDT, the market order triggers and assets are sold at the best current price

Scenario 2: Limit buy order

• Trigger price: 21,000 USDT
• Execution price: 20,000 USDT
• When the price reaches 21,000 USDT, the order triggers, and a limit order at 20,000 USDT is placed and waits for execution

Scenario 3: Limit sell order with price optimization

• Trigger price: 21,000 USDT
• Execution price: 21,000 USDT
• If the best ask at trigger time is 21,050 USDT, the order will execute immediately at 21,050 USDT (better than 21,000). If the price is below 21,000, the limit order remains in the order book.

Critical rules and limitations

It’s important to remember several key restrictions:

• The trigger price for take profit must be above the main order price (for buys), and stop-loss below
• The execution price for take profit/stop-loss cannot exceed the set price limits for the specific pair. For example, for BTC/USDT with a 3% limit, the take profit price on a buy should not be higher than 103% of the trigger price
• If the trade amount does not meet the minimum order size after executing the main order, the TP/SL may not be placed
• Maximum sizes for market orders are often smaller than limit orders. If you prepare a stop-loss as a market order for a large limit order, execution restrictions may apply

Stop loss as a strategic tool

Stop loss is not just a technical function but a trading philosophy. Professional traders always determine their exit point BEFORE entering a position. This prevents emotional decisions during a falling market.

It is recommended to:

• Set stop-loss at a level corresponding to your acceptable risk per trade (usually 1-5% of capital)
• Use take profit to lock in gains, especially if the position moves in your favor
• Regularly reevaluate trigger prices based on volatility and overall market conditions
• Test strategies on a demo account before applying on your main account

These tools are your first line of defense for capital in a volatile cryptocurrency market.