Risk management on spot: stop-loss and take-profit orders

Spot trading requires constant attention to two key tools: stop-loss and take-profit orders. A stop-loss helps minimize losses when the market moves against you, while a take-profit allows you to lock in profits at the right moment. Proper use of these tools significantly improves risk management, especially in volatile cryptocurrency markets.

The Role of Stop-Loss in Protecting Your Portfolio

A stop-loss is not just an order; it’s an insurance policy for your capital. When you enter a position, you should already know where to set your protective line. A stop-loss triggers at a certain price and automatically closes the position, preventing further losses. This is especially critical in the volatile crypto market.

Alongside downward protection, a take-profit mechanism works to lock in gains at your desired price. Both tools form the foundation of disciplined trading, where emotions do not control decisions.

How Stop-Loss Differs from Other Order Types

On the Gate platform, several risk management approaches are available, each with its own characteristics:

TP/SL Orders operate with assets from the moment they are placed. Assets are locked in the portfolio even if the price has not yet reached the trigger point. The stop-loss responds to the last trade price and initiates the order when that price is reached.

OCO Orders (One-Cancels-the-Other) use a different scheme. When placing an OCO, margin is used only on one side, not both. When one order is triggered, the other is automatically canceled. This approach is more capital-efficient.

Conditional Orders work differently: assets are not used at all until the base asset’s price reaches the trigger price. Only after the trigger is activated do the assets become involved. This is the most conservative approach.

Choosing between them depends on your strategy and the amount of funds you wish to allocate.

How Stop-Loss Activation Works in Real Trading

When placing a stop-loss order, you specify:

• Trigger Price — the level at which the order activates
• Order Price (for limit orders) — the price at which the action will be executed
• Size — the amount of assets for the order

Market Execution Mode

When a market stop-loss triggers, the order is immediately placed and executed at the best available market price. The IOC (Immediate-Or-Cancel) principle applies — any portion of the order that cannot be filled due to insufficient liquidity is automatically canceled. The advantage: instant position closure. The risk: in low liquidity conditions, the price may be worse than expected.

Limit Execution Mode

A limit stop-loss places an order in the order book and waits for execution at your specified price. If, at trigger activation, the best bid is higher than your limit price, the order will be filled immediately at the best available price. If not, it remains in the queue. The advantage: control over the execution price. The disadvantage: the order may not be filled if the price does not return to the desired level.

Practical Examples of Using Stop-Loss

Scenario One: Rapid Drop and Position Protection

You bought BTC at 40,000 USDT. The market moves against you, falling to 30,000 USDT. At this level, you set a stop-loss with a market order in advance. The trigger activates, and 1 BTC is sold at the best available price close to 30,000 USDT. The loss is fixed, the position is closed, and capital is preserved for the next trade.

Scenario Two: Price Rise with Conditional Stop-Loss

You placed a limit buy order for BTC at 40,000 USDT. Simultaneously, you pre-set:

• Take-Profit: trigger at 50,000 USDT, order price at 50,500 USDT
• Stop-Loss: trigger at 30,000 USDT (market order)

The price reaches 40,000 USDT, and your order is executed. Now both protective tools are active. If the price rises to 50,000 USDT, the take-profit triggers, locking in profit. If it falls to 30,000 USDT, the stop-loss triggers, limiting losses. One of them will trigger first, and the other will be automatically canceled.

Scenario Three: Limit Stop-Loss During Sideways Movement

You set a stop-loss for selling with a trigger at 21,000 USDT and a limit price at 21,000 USDT. When the price hits the trigger, but the best bid is 21,050 USDT, your order is immediately executed at 21,050 USDT (above the limit). However, if the price drops below 21,000 USDT, the limit sell order remains in the order book waiting for execution. If the price does not return, the order will not be filled — this is an important feature of limit orders.

Pre-Setting TP/SL Alongside the Main Order

Gate offers a convenient feature: when placing a main limit order, you can simultaneously prepare both protective orders — take-profit and stop-loss. After the main order is executed, these two orders are automatically placed with their triggers and prices.

This approach works like an OCO: only one side uses margin, and when one order triggers, the other is canceled. Traders often set both as limit orders or one as a market order and the other as a limit order — combinations are possible.

Important warning: if you have a limit stop-loss set and it triggers, the corresponding take-profit is immediately canceled, even if the limit order has not yet been filled. This can lead to unpleasant situations: the price bounces back, and now your limit stop-loss can no longer be executed (it’s already canceled), and the opposite order is also inactive.

Limitations and Features of Stop-Loss Operation

When working with stop-loss, consider several platform rules:

Trigger Price: if you place a protective order linked to a limit buy order, the stop-loss trigger must be below your main order price. For sales, the opposite applies — the trigger must be above.

Execution Price: the TP/SL order price cannot deviate from the trigger more than the pair’s allowed limit. For example, if the maximum deviation is 3% for BTC/USDT, your order price must stay within that range relative to the trigger.

Minimum Size: if, after executing the main order, the volume does not meet the minimum order size, the stop-loss may not be placed at all.

Maximum Size: limit and market orders on Gate have different maximum limits. If you try to place a large market stop-loss with a bigger limit order exceeding the maximum for market orders, the system will reject the entire operation. For example, if the maximum for limit orders is 1 BTC and for market orders is 0.5 BTC, you cannot place a limit order for 1 BTC with a market stop-loss of 1 BTC.

Conclusion

Stop-loss is not just a tool; it’s a trading discipline. Successful traders always know their exit points before entering a position. Combining stop-loss with take-profit creates a system that operates independently of your emotions, reacting to market conditions clearly and predictably. On the Gate platform, all these tools are available — the key is to use them correctly according to your trading strategy.