What are Take-Profit and Stop-Loss? A Complete Guide to Spot Trading

Stop-loss and take-profit are two key tools that every spot trader should know. If you’re just starting to trade on a crypto exchange, you’ve probably heard these terms but may not fully understand how to use them. Let’s break down what these orders are and why they are so important for risk management.

Take-profit helps you lock in profits at the right moment, while stop-loss protects you from significant losses. Together, these tools form a risk management strategy that allows you to trade more confidently, especially when the market is volatile.

Stop-loss and take-profit are risk management in action

A stop-loss (SL) automatically sells your assets if the price drops to a certain level. This prevents catastrophic losses when the market moves against you. Take-profit (TP) works the opposite — it automatically sells your position when the price reaches your target profit level.

Why do you need these orders? First, they free you from constantly watching the chart. Second, they help you avoid emotional decisions — whether you’re panicking or euphoric. Third, they allow you to plan your risk and reward precisely before opening a position.

How TP/SL differ from OCO orders and conditional orders

At first glance, it might seem that stop-loss and take-profit are the same as OCO (One-Cancels-the-Other) orders or conditional orders. In reality, each type has fundamental differences.

The main difference lies in asset usage:

When you place TP/SL orders, your assets are reserved immediately. That means the funds are no longer available for other operations, even if the order hasn’t triggered yet.

With an OCO order, the situation is different. Only one side of the margin is used. This means that if one order executes, the other is automatically canceled, and the unused margin is freed.

Conditional orders work quite differently. Assets are not reserved until the price reaches the trigger level. Only after the trigger activates do the funds start to be used.

Why is this important? If you have other orders or plan to open additional positions, you need to consider how each order type affects your available funds.

How take-profit and stop-loss work in spot trading

The process of TP/SL triggering looks like this: you set a trigger price (the level at which the order activates) and an execution price (the price at which the trade will be executed).

When the last market price reaches your trigger level, the order activates automatically. But what happens next depends on the order type.

If it’s a market order: The trade will execute immediately at the best available price. All market orders use the IOC (Immediate-Or-Cancel) principle. This means that any part of the order that cannot be filled due to insufficient liquidity or price limits will be automatically canceled.

If it’s a limit order: The order goes into the order book and waits until its price matches the market price. If at trigger activation the best bid is better than your limit price, the order will execute immediately. If not, it remains in the queue.

This is where the main risk lies: limit TP/SL orders may not execute at all if the price doesn’t reach the level or if there’s a quick bounce.

Practical examples of TP and SL activation

Let’s look at how this works with specific examples.

Scenario 1: Market stop-loss for selling

Current BTC price — 20,000 USDT. You set an SL at 19,000 USDT without a limit price (a market order).

If the price drops to 19,000 USDT, your BTC will be sold immediately at the best available price. This could be 18,900 USDT, or 19,050 USDT — depending on the liquidity in the order book at that moment.

Scenario 2: Limit take-profit for buying

BTC is trading at 20,000 USDT. You set a TP with a trigger at 21,000 USDT and a limit price of 20,000 USDT.

When the price reaches 21,000 USDT, your order activates. A limit buy order is added to the order book at 20,000 USDT. If the price falls to that level, the trade will execute. If not, the order remains pending or may be canceled according to your settings.

Scenario 3: Pre-set TP and SL along with the main order

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

• Take-profit: trigger at 50,000 USDT, limit price at 50,500 USDT
• Stop-loss: trigger at 30,000 USDT (market order)

When the main order executes at 40,000 USDT, your TP and SL are activated.

If the price rises to 50,000 USDT, the TP triggers, and a limit sell order at 50,500 USDT is placed in the book. The SL is canceled. If the price drops to 30,000 USDT earlier, the SL triggers, and you exit at the market price. The TP is then canceled.

Common mistakes and risky situations with TP/SL

Experienced traders often encounter unpleasant surprises. Here’s what to watch out for.

Mistake #1: Limit order doesn’t trigger

Many beginners set limit take-profit orders and then wonder why the trade didn’t happen. The reason: the price didn’t touch the set level, or it touched but fell back before the order could be filled.

Mistake #2: Incorrect calculation of trigger prices

When using pre-set TP and SL, remember: the trigger price for TP should be above the main order price, and for SL below. Reverse these if you’re selling.

Mistake #3: Exceeding price deviation limits

Each trading pair has a percentage limit for price deviation. For example, BTC/USDT might have a ±3% limit. If you set TP/SL outside this range, the order may be rejected. Check the rules for spot trading before placing orders.

Mistake #4: Order size exceeds market limits

Limits for spot limit and market orders differ. If you try to set a market stop-loss along with a limit main order, and the order size exceeds the maximum for market orders, the system will reject the order. For example, if the max for limit orders is 1 BTC, and for market orders is 0.5 BTC, placing a limit order for 1 BTC with a market TP/SL will be rejected.

Mistake #5: Minimum trade size

After executing the main order, the remaining amount might be below the minimum size for TP/SL. In that case, the order may not be placed or triggered properly.

Final recommendations: how to properly use stop-loss and take-profit

Stop-loss and take-profit are not just tools — they are the foundation of healthy risk management. Always use them, even if you think the market is under control.

When placing pre-set TP and SL, remember: once the main limit order executes, both orders are activated automatically. But if a limit TP or SL triggers before the main order is fully filled, the other order will be canceled.

Always check the rules in the reference info for each trading pair before placing orders. Don’t overestimate the capabilities of limit orders — they may not execute in unfavorable conditions. If you need guaranteed protection or profit locking, use market orders, though they will be executed at less predictable prices.

Practice with small amounts until you confidently master these tools. Over time, stop-loss and take-profit will become second nature in your trading.