What is Take-Profit / Stop-Loss (TP/SL)?
TP/SL means presetting a price in advance in a transaction, once the price (whether it be the last price, mark price or index price) reaches the specified trigger price, the system automatically places an order according to the preset order type, price and amount. TP/SL helps traders manage risks in a volatile market and ensure the safety of their trades.
Key Terms and Parameters
When using TP/SL functions, it is important to understand the following key terms and parameters:
- Trigger Price: When the market price reaches this level, the preset order will be activated by the system.
- Order Price: After the trigger price is reached, the system executes the buy or sell operation at the order price.
- Last Price: The most recent fill price in the market.
- Mark Price: A price used to avoid market manipulation, calculated by the platform based on a series of parameters.
- Index Price: An average price derived from multiple exchanges, reflecting the overall market price level.
Differences and Applicable Scenario of Last Price, Mark Price and Index Price
| Meaning | Applicable Scenario | |
| Last Price | The most recent fill price in the market, reflecting the current market situation. | Suitable for short-term traders who want to trade quickly based on current market dynamics. |
| Mark Price | A price calculated by the platform to prevent market manipulation and unreasonable price fluctuations. | Suitable for traders who want to avoid the risk of market manipulation, especially during high volatility. |
| Index Price | An average price based on multiple exchanges, providing a broader market price reference. | Suitable for long-term investors who want to make trading decisions based on a more comprehensive market price. |
Differences and Applicable Scenario of Order TP/SL, Position TP/SL and Trigger TP/SL
| Meaning | Applicable Scenario | |
| Order TP/SL | TP/SL set at the time of order placement, combined with limit and market order mechanism. | Suitable for users who want to set TP/SL when placing an order, allowing more flexible management of each trade. |
| Position TP/SL | TP/SL set for existing positions, closing the entire position when the trigger price is reached. | Suitable for users with existing positions who want to manage risk for the entire position. |
| Trigger TP/SL | Setting specific conditions and trigger prices for conditional orders to determine when to take profit or stop loss. | Suitable for users who want to preset complex conditions and adjust their TP/SL strategies flexibly based on market conditions. |
Why Set TP/SL?
In futures trading, market prices can be extremely volatile, especially when leverage is used, amplifying both potential profits and risks. By setting TP/SL orders, trades can be executed automatically when prices reach preset trigger points, effectively locking in profits or controlling losses.
For example, suppose you purchase 10,000 Cont BTC (value equal to 10 BTC) at a price of 50,000 USDT with 10x leverage. In this scenario, if the BTC market price rises to 55,000 USDT, you can set a take-profit order to automatically close the position, securing a profit at 50,000 USDT. Similarly, if the price drops to 48,000 USDT, a stop-loss order can automatically close the position when the last price reaches 48,000 USDT, limiting your loss to 20,000 USDT.
Formula: PnL = (Avg. close price - Avg. open price) * direction * value * Cont. (long position = 1; short position = -1)
| Condition | Price (USDT) | Leverage | Result Without SL | Result With SL |
| Buy 10,000 Cont BTC | 50,000 | 10x | - | - |
| Market price rises to | 50,000 | 10x | No timely close; if the market pulls back, profits will decrease. | Take-profit close, locking in a 50,000 USDT profit. |
| Market price falls to | 50,000 | 10x | No timely close; if the market continues to drop, losses will increase. | Stop-loss close, limiting the loss to 20,000 USDT. |
As the table above demonstrates, setting TP/SL orders can help protect your investment in a highly volatile market and ensure that you lock in profits when prices reach your expected targets. This is especially important for avoiding emotional trading and unpredictable market changes.
TP/SL is a powerful risk management tool. By understanding the differences between trigger price and order price, as well as the distinctions between the last price, mark price, and index price, you can better utilize these features to enhance trading efficiency and market responsiveness. By choosing the appropriate type of TP/SL according to different trading needs, you can effectively lock in profits and limit losses, ensuring the safety and stability of your trades.