In the fast-paced world of derivatives trading, effectively managing risk is paramount. Take Profit (TP) and Stop Loss (SL) orders are fundamental tools that empower traders to automate their exit strategies, safeguarding profits and limiting potential losses. This guide delves into the mechanics of these crucial order types for perpetual and futures contracts, explaining how they function and how to leverage them in your trading strategy.
What Are Take Profit and Stop Loss Orders?
A Take Profit (TP) order is a conditional instruction set to automatically close a position when the market price reaches a predetermined profit target. Its primary purpose is to lock in gains without requiring the trader to constantly monitor the market.
A Stop Loss (SL) order is a conditional instruction designed to automatically close a position when the market moves against the trader to a specific price level. Its core function is to cap potential losses, serving as a crucial risk management safety net.
When placing a limit, market, or conditional order, traders can pre-set these TP/SL parameters. They can also modify these prices before the initial order is filled.
How to Set Up TP and SL Orders
When configuring these orders, traders are typically presented with two primary options governing the scope of the order's application:
1. Entire Position
The TP/SL order will apply to the entire open position. Only one TP/SL order for the whole position is permitted. When the trigger price is reached, the entire position will be closed via a market order.
2. Partial Position / Current Order
The TP/SL order applies only to a specified portion of the open position. This allows for setting multiple TP/SL orders for parts of a single position. When the trigger price for a partial order is hit, the corresponding amount will be closed via a market or limit order, depending on the initial setup. If both TP and SL are set simultaneously on the same order, triggering one will automatically cancel the other.
Key Differences: Legacy vs. Enhanced TP/SL Systems
Trading platforms often upgrade their order systems. The following table outlines common enhancements between a legacy system and a more modern, flexible one.
| Feature | Enhanced System | Legacy System | ||
|---|---|---|---|---|
| Setup Flexibility | Flexible setup for entire or partial positions. | Manual selection required for "Full" or "Partial" TP/SL. | ||
| Trigger Conditions | Price, Profit/Loss Ratio, Price Change %, P&L (USD). | Price, Profit/Loss Ratio. | ||
| Order Types | Conditional Market Orders; Conditional Limit Orders (for partial positions). | Conditional Market Orders only. | ||
| Execution Logic (Entire Position) | Triggers full position closure via market order. | Triggers full position closure via market order. | ||
| Execution Logic (Partial Position) | Triggers partial closure via market or limit order. | Triggers partial closure via market order only. | ||
| Max Number of Orders | One TP/SL order per entire position. | Multiple TP/SL orders per position. | One TP/SL order per existing position. | Up to 20 TP/SL orders. |
| Adding to a Position | TP/SL order quantity adjusts with the changing position size. | TP/SL order quantity remains static despite position size changes. | A new TP/SL price set on a new order replaces the old one after execution. | A new TP/SL order applies to the newly added quantity and exists independently. |
| Reducing a Position | TP/SL order quantity adjusts downward with the position size. | TP/SL order quantity remains static. | Position size decreases, but the TP/SL price remains unaffected. | Upon partial closing, the earliest partial TP/SL order quantities are reduced to match the new position size. |
Practical Examples of TP/SL in Action
Understanding theoretical concepts is easier with concrete examples. Let's explore a few scenarios.
Example 1: Multiple Partial TP/SL Orders
Assume Trader A holds a 1 BTC long position with BTC at $25,000. They have set three orders:
- Order A (Partial, Market): TP at $26,000 for 0.5 BTC.
- Order B (Partial, Limit): TP at $30,000 (Order Price: $30,500) for 0.5 BTC.
- Order C (Full Position, Market): SL at $23,000 for 1 BTC.
Scenario:
a) Price hits $26,000: Order A executes, closing 0.5 BTC via market order. Orders B and C remain active for the remaining 0.5 BTC.
b) Price later hits $30,000: Order B triggers, placing a limit sell order at $30,500.
- If the limit order fills at $30,500, the position closes and Order C cancels.
- If price falls to $23,000 before Order B fills, Order C triggers, closing the remaining 0.4 BTC via market order. The unfulfilled part of Order B (0.1 BTC) is canceled.
Example 2: Adding a New Order with TP/SL
Trader A has a 1 BTC long position with a partial TP order at $26,000 for 0.5 BTC. They then place a new buy limit order for 1 BTC at $24,000 with a new TP at $27,000 and SL at $22,000 (for the current order).
Scenario:
a) The market price drops to $24,000, filling 0.5 BTC of the new order. The total position is now 1.5 BTC. A new partial TP/SL order (Order B) is created for 0.5 BTC.
b) If price then rises to $26,000, the original TP order executes, closing 0.5 BTC. Order B remains for the remaining 1 BTC.
For advanced strategies and a deeper look at order execution, many traders find it helpful to explore more sophisticated risk management tools.
Frequently Asked Questions
How can I view my active and historical TP/SL orders?
Active, untriggered TP/SL orders can typically be viewed in your "Open Orders" or "Current Orders" tab within the trading platform. Orders that have been triggered, canceled, or filled can be reviewed in the "Order History" section.
Why can the total quantity of my partial TP/SL orders exceed my actual position size?
Traders can set multiple orders for partial positions. The system is designed to execute these orders based on the specified quantity or the available position size, whichever is lower. It will not create a reverse position or over-liquidate. The corresponding opposite order (e.g., a SL if the TP triggers) is automatically canceled.
Why was my position liquidated even though I had a stop loss set?
This can occur for several reasons:
- Reference Price Mismatch: Bybit uses the Mark Price for liquidation triggers. If your stop loss was referenced to the Last Traded Price and a flash crash occurred in the Mark Price, liquidation could happen before your stop loss triggered.
- Excessive Slippage: In highly volatile conditions, the actual execution price of a market stop loss order can be significantly worse than the trigger price, potentially pushing the fill price past the liquidation point.
- Bankruptcy Price Breach: If the system calculates that executing the stop loss would result in a loss greater than the margin held for that position, it may treat the event as a liquidation to be handled by the insurance fund.
What is the difference between Mark Price and Last Traded Price?
The Last Traded Price is the price at which the most recent trade occurred on the exchange. The Mark Price is a calculated fair value price designed to avoid manipulation and is used by Bybit to trigger liquidations and determine unrealized P&L. It is crucial to set stop losses using the Mark Price as a reference for accurate liquidation protection.
Can I set a stop loss price below my liquidation price?
Yes, most platforms allow this for flexibility with different trading strategies. However, it is generally not advisable for risk management. If the stop loss is below the liquidation price, the position will be liquidated before the stop loss can ever be triggered, rendering the stop loss order无效.
What happens if my position size is larger than the maximum allowed order size?
For very large positions, the system will break the closing order (like a full-position TP/SL) into chunks equal to the maximum permitted order size. It will submit these orders sequentially until the entire position is closed. Any remaining quantity between submissions remains at market risk. There is usually a cap on the number of submission attempts.