What is TP/SL Order
TP/SL stands for Take Profit/Stop Loss. These order types allow traders to automatically close open positions when the price reaches a certain level. As their respective names suggest, a take-profit order will lock in profits when the price moves in the trader's favor, whereas a stop-loss order will take an immediate loss to prevent further downside.
Both orders help manage your risk and reward in crypto trading. For example, if you long BTC at $30,000 at 1x and want to keep your profit/loss at 20% maximum, then you can set a take-profit order at $36,000 and a stop-loss order at $24,000.
Suppose BTC touches $36,000 and the take-profit order is triggered, your position will be closed automatically, and you will secure a +20% on your principal regardless of BTC price movements afterward.
Some exchanges allow you also to customize other parameters of TP/SL orders. You can select between market and limit orders when the price reaches the target price. For example, a stop-loss market order is called a stop-market order, and a stop-loss limit order is called a stop-limit order. The difference is that a stop-market order becomes a market order when triggered, meaning it will execute at whatever price. In contrast, a stop-limit order becomes a limit order and will only execute below (or above) the preset trigger price.
You can also select the % of the position you want to be closed at a certain price level, which means you can set multiple TP/SL orders in the same direction. For example, in the same BTC trade, you can set to close 50% of your position at $36,000 and the rest at $40,000.
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