Take-Profit and Stop-Loss: Risk Management in Spot Trading

Risk management is the foundation of successful cryptocurrency trading. Take profit is a tool that allows traders to automatically lock in profits when a target price is reached, while stop-loss helps minimize losses during unfavorable market movements. Both types of orders act as insurance for your portfolio, especially in volatile cryptocurrency markets.

What are Take Profit and Stop-Loss

Take profit (TP) is an automatic sell order that triggers when the asset’s price reaches your set profit level. Instead of manually monitoring the chart and waiting for the optimal exit point, take profit automates this process for you.

Stop-loss works on the opposite principle: it is a protective order that automatically closes your position if the price falls below a specified loss threshold. Together, these two tools create a clear risk management system, allowing traders to operate with greater confidence.

Differences between TP/SL, OCO orders, and conditional orders

On the Gate.io platform, several types of protective orders are available, each with its own features regarding margin use and trigger mechanisms.

TP/SL orders differ in that assets are reserved at the moment of order placement. This means funds are locked immediately, even if the trigger price has not yet been reached. This approach guarantees order execution once the trigger is hit but requires available free funds in your account.

OCO orders (One-Cancels-the-Other) are more efficient in terms of margin usage. When placing an OCO order, only one side of the margin is reserved, not both. This means that if one part of the order is triggered, the other is automatically canceled, preventing double locking of funds. You can read more about this in руководстве по OCO-ордерам.

Conditional orders operate on a fundamentally different principle: assets are not used at all until the trigger activates. Funds remain available and are only blocked once the underlying asset reaches the trigger price. This provides maximum flexibility but carries the risk that funds could be used elsewhere before the conditional order triggers.

How TP/SL orders work on the spot market

Direct placement of TP/SL orders from the trading interface

When placing a take profit or stop-loss order, you specify three key parameters: trigger price (the level at which the order activates), order price (for limit orders), and the position size you want to close.

Market orders in the TP/SL system are executed immediately at the best available price once the trigger is hit. All market orders follow the IOC (Immediate-Or-Cancel) principle: any portion of the order that cannot be filled immediately due to insufficient liquidity is automatically canceled. This means you may receive partial fills if the market lacks enough demand or supply.

Limit orders are placed in the order book and wait for execution at your specified price. If the current best bid or ask is higher or lower than your limit price, respectively, the order will execute immediately at the best available price. Otherwise, it remains pending at your set level.

Important warning for traders: limit orders may not trigger if the price does not reach the set level. Execution depends on both price movement and liquidity in the order book, so exercise caution when using limit orders for TP/SL.

Examples of order triggers in different scenarios

Scenario 1: Market stop-loss
Suppose you bought BTC at 40,000 USDT. You want to protect your position by setting a market stop-loss trigger at 35,000 USDT. If the price drops to this level, the order triggers immediately, and your position is sold at the best available market price, minimizing losses.

Scenario 2: Limit take profit
You hold 1 BTC and want to lock in profit at 55,000 USDT. You set a limit take profit order with a trigger at 50,000 USDT and an order price of 50,500 USDT. When the price reaches 50,000 USDT, the order triggers and is placed in the order book. If there are buyers at 50,500 USDT or higher, the order will execute; if not, it remains pending.

Scenario 3: Limit take profit with a better price
Trigger set at 50,000 USDT, limit price at 50,500 USDT. When the trigger activates, if the best ask is 51,000 USDT, your order will execute immediately at 51,000 USDT instead of 50,500 USDT — a favorable scenario for you.

Placing pre-set TP/SL along with the main order

A more advanced method is to place take profit and stop-loss orders simultaneously when opening a position. When you place a limit buy order, you can immediately prepare both protective orders: one to lock in profit, the other to limit losses. After the main order executes, the TP and SL are automatically activated with preset parameters.

This approach is similar to OCO orders in terms of margin efficiency — only one side of the reserve is used. Traders can set both orders as market or limit orders, or a combination of both.

Critical point: if you set a limit stop-loss order, it will be canceled immediately after the main order executes, even if the stop-loss itself has not yet been triggered. In rare cases of price reversals, this may lead to the stop-loss not being executed, leaving your position unprotected.

Practical example with combined TP/SL

A trader places a limit buy order for 1 BTC at 40,000 USDT. Simultaneously, they prepare:

• Limit take profit: trigger at 50,000 USDT, order at 50,500 USDT
• Market stop-loss: trigger at 30,000 USDT

If the price reaches 40,000 USDT: the main order executes, and both protective orders are automatically activated.

Scenario A — price rises to 50,000 USDT: the take profit triggers, placing a limit order at 50,500 USDT in the order book, and the stop-loss is canceled automatically. If there are buyers at or above 50,500 USDT, you close the position with profit.

Scenario B — price drops to 30,000 USDT: the stop-loss triggers, placing a market order to sell at the best available price, limiting your losses.

Important limitations and notes

When using TP/SL on Gate.io, consider several restrictions:

• For spot limit orders with attached TP/SL, all trigger prices must be logical relative to the main order. For buys, trigger TP should be above the order price, and trigger SL below. For sells, vice versa.

• TP/SL order prices cannot exceed the platform’s volatility limits. For example, if the maximum deviation for a pair is 3%, the limit take profit price for a buy order should not be higher than 103% of the trigger price. See Правилах спотовой торговли for exact limits.

• After the main order is executed, the position size or value may not meet the platform’s minimum requirements, leading to cancellation or non-execution of TP/SL. Ensure your remaining position is sufficient.

• There is a difference in size limits between limit and market orders. If you try to set a market TP/SL order with a position size exceeding the maximum for market orders, the placement will be rejected. For example, the maximum limit order might be 1 BTC, while the maximum market order is 0.5 BTC, so setting a limit order for 1 BTC with a market TP/SL will cause an error.

Understanding these rules and restrictions will help you effectively use take profit and stop-loss orders to manage your positions and minimize risks in the volatile cryptocurrency market.