What Is TP in Coin? A Guide to Risk Management Using Take Profit and Stop Loss

If you are trading cryptocurrencies, especially spot trading on exchanges like Gate.io, you will definitely hear about two important concepts: TP (Take Profit) and SL (Stop Loss). But what exactly is TP in coins? These are two essential risk management tools that every trader needs to master.

TP and SL – Two Basic Risk Management Tools

TP (Take Profit) is an automatic order that helps you lock in profits when the asset price reaches your predetermined target. Instead of constantly monitoring the screen, a TP order will automatically sell your asset at your desired profit level. This is especially useful in fast-moving markets where profit opportunities can disappear in an instant.

Conversely, SL (Stop Loss) is an order that protects your account from excessive losses. When the price drops to a specified level, the SL order will automatically sell your asset to limit damage. This mechanism acts like an automatic “circuit breaker” for your portfolio.

Both orders operate based on trigger prices—when the market price hits your set level, the order will automatically execute.

The Difference Between TP/SL and Other Types of Orders

To understand better, you need to know that TP/SL orders are not the only risk management orders. There are two other types you might encounter: OCO (One-Cancels-the-Other) and Conditional Orders.

TP/SL orders work by consuming your assets immediately when you place the order. This means your funds or assets are “locked” right away, regardless of whether the order is triggered or not.

OCO orders are different—they only utilize one side of the order at a time. For more details on how this mechanism works, you can refer to our OCO guide.

Conditional Orders operate in a third way: your assets are not used until the underlying asset’s price reaches the trigger level. Only then are the assets “locked” and the order activated.

This distinction is crucial because it directly affects how much of your assets are available for other trades.

How TP/SL Works in Spot Trading

Placing TP/SL Orders Directly

When you place a TP/SL order from the order area on Gate.io, you need to specify three main parameters: trigger price, order price, and quantity. Your assets will be “locked” immediately upon placing the order, not when it is triggered.

When the current trading price reaches your trigger price, the system will automatically place a Limit or Market order based on your choice.

If you choose a Market order, the order will be filled immediately at the best available market price. All market orders follow the IOC (Immediate Or Cancel) principle. This means if part of the order cannot be filled immediately due to lack of liquidity, that part will be automatically canceled.

If you choose a Limit order, the order will be placed into the order book and wait to be executed at your specified price. If the current bid or ask is better than your limit price, the order may be filled immediately at that price.

Important note: Limit orders are not guaranteed because they depend on price fluctuations and order book liquidity. Use this type carefully.

Real-Life Examples of TP/SL

Suppose the current BTC price is $20,000 USDT. You want to set TP/SL orders for different scenarios:

Scenario 1: Market Sell TP/SL Order

• Trigger price: $19,000 USDT
• When BTC drops to $19,000 USDT, the TP/SL will be triggered
• A Market sell order will execute immediately at the best available market price at that moment

Scenario 2: Limit Buy TP/SL Order

• Trigger price: $21,000 USDT
• Order price: $20,000 USDT
• When BTC reaches $21,000 USDT, the order is triggered
• A Limit buy order at $20,000 USDT is placed into the order book
• The order will execute when the price drops to $20,000 USDT

Scenario 3: Limit Sell TP/SL Order

• Trigger price: $21,000 USDT
• Order price: $21,000 USDT
• When the price hits $21,000 USDT, the order is triggered
• If the best bid is $21,050 USDT, the order will execute at $21,050 USDT (better price)
• If the price drops below $21,000 USDT at trigger, the order will be placed into the order book

Combining TP/SL Orders with Limit Orders

An advanced method is to set a Limit order combined with pre-set TP/SL orders. This approach aligns with OCO logic, where only one side of the position is used.

For example: Trader A wants to buy 1 BTC at $40,000 USDT. Simultaneously, they set:

• Take Profit Limit order: trigger at $50,000 USDT, sell at $50,500 USDT
• Market Stop Loss order: trigger at $30,000 USDT

If the price rises to $50,000: The TP order is triggered, and a sell order at $50,500 USDT is placed and awaits execution. The SL order is automatically canceled.

If the price drops to $30,000: The SL order is triggered, selling 1 BTC at the best available market price. The TP order is canceled.

Important Notes When Using TP/SL

To use TP/SL orders effectively, you should understand some key rules:

Trigger Price: When placing a sell order with TP/SL on a buy Limit order, the TP trigger price must be higher than the Limit order price, while the SL trigger must be lower. Conversely, when placing a TP/SL on a sell Limit order, the TP trigger must be lower than the Limit order price, and the SL trigger must be higher.

Limit Price: The limit prices for TP and SL should not exceed the contract’s price limits. For example, if the limit margin is 3%, the TP/SL order price should not exceed 103% of the trigger price for buys, or be below 97% for sells.

Quantity: If the amount or value of the trade does not meet the minimum after the Limit order is executed, your TP/SL order may not be placed.

Order Size Limits: The maximum order size for Limit and Market orders differ. When attempting to place a Market TP/SL order along with a Limit order, if the size exceeds the Market order limit, the order placement will be rejected.

Understanding what TP is and how to use it not only helps protect your profits but also forms a fundamental risk management strategy that all successful traders apply. Start with simple TP/SL orders and gradually upgrade as you gain more experience.