What are Take-Profit (TP) and Stop-Loss (SL)?

Take-Profit (TP) is the price level at which a trader wants to close the current position in order to lock in profit. When the price reaches the Take-Profit level set by the trader, the order to close the position is automatically executed and the position is closed at the market price.

On the other hand, Stop-Loss (SL) is the price level at which the trader wants to close the current position to limit the loss. When the price reaches the Stop-Loss level set by the trader, the close order is also automatically executed and the position is closed at the market or set price.

Take-Profit (TP) and Stop-Loss (SL) are some of the basic tools used to effectively manage risk, control emotions and adhere to trading strategies.

In this article, we will take a detailed look at what Take-Profit (TP) and Stop-Loss (SL) are, how they work on WhiteBIT, and why they are important tools for any trader looking to trade effectively in the digital asset market.

Learn more about Take-Profit (TP)

Take-Profit (TP) is a predetermined price level at which a trader intends to close a position for profit.

As a rule, the TP level is set above the entry price for long positions and below the entry price for short positions. Once the market reaches the set level, the position is automatically closed and the trader locks in his profit.

For example: 

• A user opened a Long position for 1 ETH at a price of 2000 USDT:
• He decided to use a fixed profit strategy and set the Take-Profit target level to 15%.
• In this case, he should set the TP at 2300 USDT. If the price of ETH starts to rise and reaches the 2300 USDT level, then a sell order for ETH will be set and executed automatically at the market price.
• If the target level is reached, the order will be executed and the user will receive a profit of 15% of the initial buy price, which is equal to: 2000 USDT * 0.15 = 300 USDT.

Read more about Stop-Loss (SL)

Stop-Loss (SL) is a request to automatically sell a cryptocurrency if the price reaches a certain level. The tool is designed to manage risk and to limit potential investment losses.

SL is usually set at a price lower than the current market price for Long positions and higher than the current market price for Short positions. The order is triggered when the market price reaches the specified SL price and the asset is sold at the market price. This helps to protect the investor from further losses.

For example:

• A user has opened a Long position for 1 BTC at a price of 40,000 USDT.
• The loss he is willing to incur from this trade is 8%.
• In this case, the SL should be set at 36,800 USDT. And if the price of BTC starts to fall and reaches the level of 36,800 USDT, the automatic sell order will be set and executed at the market price.

TP and SL orders do not guarantee execution at the specified price, especially in volatile market conditions, if demand exceeds supply or if the position size is too large. Bids may be prone to slippage and the execution price may be worse than the fixed SL price.

How do Take-Profit (TP) and Stop-Loss (SL) work on WhiteBIT?

On WhiteBIT, you can set TP and SL when placing a new Buy or Sell order, before opening a Long or Short position, or when adding funds to an order or position. TP and SL can be used individually or in combination.

In a technical context, Take-Profit and Stop-Loss work as a Stop-Market order, but without specifying an asset quantity. This means that when the TP or SL level is reached, the exchange will automatically close the entire position at the market price.

The TP/SL function on WhiteBIT allows for more efficient risk management due to the simultaneous placement of multiple TP/SL orders. With this functionality you can adjust TP/SL while placing a limit, market or Stop-limit/Stop-Market order directly in the order settings area.

There are two options for placing TP/SL orders:

• For the whole position: when you set TP/SL for the whole position, it means that Take Profit and Stop Loss levels are applied to the whole volume of your trade. You can set a single TP/SL order for the entire trade. When the price reaches your predetermined TP/SL level, your entire position is automatically closed at the current market price.
• For a part of a position: when you open a position or add funds to a position, you can set a TP/SL for that amount of your trade, which means that you can build multiple TP/SL levels for different parts of your trade. When one of the TP/SL levels is reached, the corresponding amount will be automatically closed at the current market price and the other TP/SL levels will continue to apply.

To get a deeper understanding of how these orders function, we suggest you study the case studies given later in the article. Also, we can see a more detailed difference between these placement options by comparing them in this table:

Also, for better understanding, let's look at a few examples:

Scenario 1 – a trader has multiple TP/SL orders at the same time.

For example, the current market price of BTC is 25,000 USDT. A trader opens a Long position for 1 BTC and at the same time creates several TP/SL orders:

TP/SL order A

• TP/SL parameters: for a part of the position (let's assume using a market order)
• TP trigger price: 26,000 USDT.
• Quantity: 0.5 BTC

TP/SL Order B

• TP/SL parameters: for a part of a position (using a market order)
• TP Trigger Price: 30,000 USDT.
• Quantity: 0.5 BTC

TP/SL Order C

• TP/SL parameters: for the whole position
• SL trigger price: 23 000 USDT
• Quantity: 1 BTC

Under market conditions, the TP/SL function will work as follows:

• When the market price of BTC reaches 26,000 USDT, TP/SL order A is triggered and closes a 0.5 BTC portion of the position at the market price. The trader is left with a 0.5 BTC position (with TP/SL orders B and C still active).
• When the market price of BTC reaches 27,000 USDT, the trader manually closes 0.1 BTC. The total position volume is now 0.4 BTC (with TP/SL orders B and C still active).
• When the BTC market price reaches 30,000 USDT, TP/SL order B is triggered and Take-Profit on the market order is 0.4 BTC (with TP/SL order C cancelled automatically).  

Scenario 2 – the trader already has a TP/SL order, and a new order with TP/SL (for the current order) is executed.

Let's assume that the current market price of BTC is 25,000 USDT. The trader already has a Long position for 1 BTC, and the Take-Profit order has the following settings:

TP/SL order A

• TP/SL parameters: for the whole position (using a market order)
• TP trigger price: 26,000 USDT 
• Quantity: 1 BTC

Then, the trader places a limit order to buy 1 BTC at a price of 24,000 USDT with a new Take-Profit of 27,000 USDT and Stop-Loss of 22,000 USDT for the 1 BTC contract (current order).

In market conditions, the TP/SL function will work as follows:

• If the market price falls to 24,000 USDT and the limit order is partially executed for 0.5 BTC - the size of the current open position will be 1.5 BTC. The new TP/SL order will be placed as follows:

TP/SL order B

• TP/SL parameters: for a part of the position
• TP Trigger Price: 27,000 USDT
• Quantity: 0.5 BTC
• SL trigger price: 22 000 USDT
• Quantity: 0.5 BTC

In market conditions, the TP/SL function will work as follows:

• If the market price of BTC reaches 26,000 USDT, TP/SL order A is triggered and closes a 1 BTC position at the market price. The trader is left with a 0.5 BTC position (with TP/SL order B still in effect).
• If the market price of BTC reaches 24,000 USDT, the remaining 0.5 BTC limit order will be executed and a new TP/SL order C for 0.5 BTC will be placed. At the same time, Trader A's position size will increase to 1 BTC and the two TP/SL orders B and C will remain active.

TP/SL order C

• TP/SL parameters: for a part of the position
• TP trigger price: 27,000 USDT
• Quantity: 0.5 BTC
• SL trigger price: 22 000 USDT
• Quantity: 0.5 BTC

Why to use TP and SL?

Risk Management 

TP and SL help limit potential losses and gains. If you set a predetermined exit point (SL), you can control the maximum amount you are willing to lose from a trade. TP orders, on the other hand, allow you to lock in profits when the market reaches a desired level and take advantage of favourable market movements.

Eliminate emotional bias and maintain trading discipline

The market is all about emotions. Trading can often be difficult and emotions can cloud judgement when it comes to changing strategy. TP and SL orders help eliminate emotional bias by automating your exit strategy. By placing orders prematurely, you can avoid the temptation to deviate from your plan due to fear or other emotional factors. TP and SL help to maintain trading discipline and execution of the trading plan, which is the foundation of stable trading in the market.

Time Management

TP and SL save time because with them, you don't have to constantly monitor the market. Once orders are set, you can focus on other aspects of your trading strategy.

Support

In case of any questions related to the functionality of our exchange, you can:

• Leave a request on our website;
• Write to the support email: support@whitebit.com;
• Write to the chat using the button in the lower right corner of the screen (in the upper right corner of the WhiteBIT app, click ).