Stop loss and take profit are capital protection systems in futures markets.

Stop loss and take profit are two key tools without which professional trading on futures contracts is impossible. They function as automatic risk management mechanisms, allowing traders to lock in profits and limit losses without constant market monitoring. Understanding these tools is critically important for anyone serious about trading derivatives.

What is take profit and how does it protect profits

Take profit is an automatic closing tool that triggers when the price reaches a certain profit level. When you open a position, you can simultaneously set a take profit level, and once the market price hits this target, your position is automatically closed at the market or limit price.

The main value of take profit is that it allows traders to stick to a pre-planned entry and exit strategy. Instead of waiting for the price to fall back or guessing when to exit a profitable position, you can automatically lock in your gains. This is especially useful in high volatility conditions, where the market can quickly reverse.

Stop loss and take profit as a protection system: the role of stop loss

Stop loss and take profit are often used together, with stop loss serving a protective function. A stop loss is an order that triggers when the price moves against you and reaches a certain loss level. When the stop loss trigger price is activated, the position is closed, limiting your losses to an acceptable level.

Stop loss is not only a protection tool but also a fundamental element of a trader’s psychological comfort. Knowing that your maximum loss is limited allows you to trade without excessive emotional stress and to adhere to a disciplined approach to capital management.

Two approaches to position management: full and partial closure

Modern platforms offer two ways to apply TP/SL mechanisms:

Closing the entire position at once: When the trigger price is reached, the entire open position is closed with a single market order. This approach is simple and suitable for traders with a clear trading strategy who know exactly where they want to exit completely.

Partial closure at levels: You can set multiple take profit and stop loss orders for one position, closing it in parts. For example, the first take profit closes 30% of the position at +5%, the second closes another 30% at +10%, and the third closes the remaining 40% at +15%. This approach allows for gradual profit locking while leaving part of the position “working” in hopes of higher gains.

Trigger parameters: from price to percentages and P&L

Modern stop loss and take profit mechanisms are flexible tools triggered by various parameters:

By price: The classic method, where you set a specific price level (e.g., sell BTC if the price drops to $20,000).

By ROI (return on investment) percentage: You set a desired profit or loss percentage (e.g., +5% or -3% from entry price).

By P&L (profit/loss amount): You specify an absolute amount in USDT that will serve as a trigger (e.g., exit the position if loss reaches 1,000 USDT).

This variety of approaches allows each trader to choose the most convenient risk management method suited to their strategy.

Practical trading scenarios

Scenario 1: Trader with a conservative strategy

Current BTC price is $25,000. The trader opens a long position of 1 BTC. Simultaneously, they set:

• Take profit at $26,000 (close 50% at market price)
• Second take profit at $30,000 (close remaining 50 at limit order $30,500)
• Stop loss at $23,000 (protection against sharp decline)

When the market reaches $26,000, the first take profit triggers, closing half the position. The remaining half continues to run. If the price continues rising to $30,000, the second take profit activates, and a limit order is placed in the order book. If the price drops to $23,000, the stop loss triggers, closing the remaining position and limiting losses.

Scenario 2: Adding to a position with new levels

The trader already has a long position of 1 BTC with set TP/SL levels. The market is at $25,000. Seeing a good entry point, they place an additional limit order to buy 1 BTC at $24,000 with its own TP ($27,000) and SL ($22,000).

If the limit order executes, new independent TP/SL levels are set for this new volume, while the original position continues with its initial parameters. This allows managing multiple levels separately, providing flexibility in multi-tiered strategies.

Important considerations when working with stop loss and liquidation

Liquidation level vs. stop loss: The liquidation price is determined by margin trading conditions and platform parameters. With maximum leverage, the stop loss price can coincide with the liquidation price. If your stop loss is set below the liquidation level, it may not trigger, and the position will be automatically liquidated by the system.

No guarantee of execution: In extreme volatility, the best available price in the order book may be much worse than your set stop loss level. If executing your stop loss would result in losses exceeding your initial margin, the system may register this as a liquidation to cover the deficit with the platform’s insurance fund.

Price marking system: Most professional platforms use a “mark price” (a weighted average of various data sources) for liquidation triggers, rather than the last traded price. This prevents manipulation and protects traders from artificial liquidations.

Advanced features: multiple orders and position scaling

Working with multiple orders: Modern systems allow setting up to 20 different TP and SL orders for a single position, each with its own volume and trigger price. When a specific level is hit, the corresponding volume is closed, and any related opposite order (if present) is canceled.

Automatic adjustment when changing volume: If you increase your position size by adding a new order, your existing TP/SL orders’ volumes do not automatically change. Instead, new levels are placed independently for the additional volume. If you manually decrease your position, TP/SL order volumes are proportionally adjusted.

Scaling very large positions: If your position exceeds the maximum allowed order size (e.g., BTCUSDT limit of 100 BTC per order), the system automatically splits your stop loss into multiple orders. It sends the first order for the maximum volume, and after it executes, sends the next, and so on. Remaining open parts of the position remain at risk of liquidation. Some platforms limit the number of attempts (e.g., 6), after which you must manually close remaining volumes.

Frequently asked questions

How to check active TP/SL orders and their execution history?

In the trading interface, you can view active (pending) orders in the current positions section. All executed, canceled, or expired TP/SL orders are shown in the order history, where you can see exact execution prices and times.

Why does the total number of contracts in my TP/SL orders exceed my open position size?

This is normal. You can set multiple TP/SL orders for part of a position, and their combined volume may be larger than your current position. The system will execute orders according to the specified amount or the maximum open position size, whichever is less. Opposite orders (e.g., SL if TP triggers) are automatically canceled to prevent creating a position in the opposite direction.

Why does the system allow me to set a stop loss above the liquidation price?

Each trader has the right to their trading strategy, and the system does not impose artificial limits on TP/SL parameters. However, you should carefully verify your stop loss level before confirming, to ensure correctness. A stop loss set below the liquidation price may not trigger if liquidation occurs first.

My stop loss was below the liquidation price, but the position was liquidated earlier than my SL triggered. Why?

This can happen if executing your stop loss would lead to losses exceeding your initial margin. When the best available prices in the order book are worse than the price at which your margin would be exhausted, the system prefers to liquidate to cover the deficit with the insurance fund, rather than allow your account to go negative.

What happens to my stop loss for the entire position if I add new volume?

If you place a new TP/SL order for the current order (new part of the position), the old TP/SL levels for the main position continue to operate independently. New levels are created for the additional volume. If you place an order with only a stop loss for the entire position, old TP and SL orders are canceled, and the new SL replaces them for the increased size.

Understanding the mechanics of stop loss and take profit is fundamental to successful risk management in futures trading. Proper use of these tools enables traders to trade disciplined and emotionally stable, regardless of short-term market movements.