Advanced order types can be useful for predetermining trade risk and target points. Before entering a trade, common trade management practice involves knowing when to cut a losing trade and when to get out of an in-profit winning position. Stop-loss and take profit orders are predetermined prices where positions will be closed.
Stop-loss orders are a way to limit risk on any given trade. For example, say you put in a market order for 1,000 contracts (1 BTC) at $10,000. Let's then say you want to exit that trade if the price goes $500 against you. In this case, you would put in a stop-loss order of 1,000 contracts (one BTC) at $9,500. If the price drops to $9,500 on the BTSE exchange, the stop-loss triggers and the position closes.
There are two types of stop-loss orders: stop-market and stop-limit.
Stop-market orders close your position at your specified order (trigger) price, regardless of available liquidity when the asset hits that price.
Say you go long 1,000 BTC perpetual futures contracts (BTCPFC) while BTC is at $10,000, with a stop-market order set at $9,500. If BTC’s price drops down to $9,500 on the BTSE exchange, your stop-market order triggers, picking up the closest surrounding orders (liquidity) and selling your 1,000 contracts at $9,500 (or whatever buy orders are closest to $9,500 when the $9,500 level is triggered).
Stop-market orders can be effective, but can also see the same slippage as regular market orders. If BTC’s price dumps on a strong downward move, there may not be enough immediate liquidity to fill your entire stop-market order right at $9,500. Some of your order may fill below $9,500.
A stop-limit order closes a losing position at a predetermined level, similar to a stop-market, but without slippage. Using the mentioned example above, if BTC’s price drops to the $9,500 level, your limit stop-limit order triggers, and your order enters the order book as a normal limit order. If the price moves too quickly, however, there is a risk that your order might be skipped without filling at all if a lack of liquidity exists at the time price moves and your order triggers.
Take Profit Orders
Take profit orders can be useful if you know the exact level at which you would like to close part or all of your positions. If you go long 1,000 BTCPFC at $10,000 and want to automatically close that position in profit at $11,000, then you can place a take profit order for 1,000 BTCPFC at $11,000. If BTC’s price reaches $11,000 on the BTSE exchange, your take profit order triggers and closes in profit of $1,000. If you want to close 50% of your order in profit at $11,000 and 50% in profit at $12,000, then you can place a take profit order for 500 BTCPFC at $11,000, and another take profit order for 500 BTCPFC at $12,000.
Take profit orders are divided into take profit market orders and take profit limit orders, abiding by the same rules as stop-market and stop-limit orders.