Risk Management in Spot Trading: How to Set Trigger Prices for Take-Profit and Stop-Loss

In spot trading, the trigger price plays a critical role in protecting your capital. Take-profit (TP) and stop-loss (SL) orders are two essential tools that allow traders to automatically lock in profits and limit losses without constant market monitoring. Understanding how the trigger price works is key to successful risk management.

How the Trigger Price Works in TP/SL Orders

When you place a TP/SL order, you set two parameters: the trigger price (activation level) and the execution price. Once the current price of the last trade reaches the trigger price you set, the system automatically places a limit or market order with your predefined parameters.

The execution process occurs in this sequence:

1. You set the trigger price — the level at which the order activates
2. During order placement, assets are reserved at the moment of creation
3. When the price reaches the trigger price, the system automatically initiates the order
4. Then, a market or limit order is placed based on your settings

Important to remember: Market orders are executed on an IOC (Immediate Or Cancel) basis — any portion that cannot be filled due to insufficient liquidity will be canceled. Limit orders are placed in the order book and may not be filled if the price does not reach the specified level.

Asset Reservation Differences: TP/SL vs. OCO and Conditional Orders

When choosing an order type, it’s important to understand how your assets are reserved:

TP/SL orders — assets are reserved immediately upon placement, ensuring funds are available for order execution when the trigger price is reached.

OCO (One Cancels the Other) orders — only one side of the margin is reserved at placement, as the system understands that only one of the two orders will be executed.

Conditional orders — assets are not reserved at placement. Reservation occurs only when the current price reaches the trigger price, activating the conditional order.

This difference is significant if you have a limited balance or want to optimize margin usage.

Practical Examples of TP/SL Order Execution

Scenario 1: Market Stop-Loss Order

Suppose you bought BTC at $40,000 USDT. You set a stop-loss with a trigger price at $30,000 USDT and a market order to sell. If the price drops to $30,000, the system will automatically place a sell order at the best available market price at that moment. This protects you from deeper losses in case of a sharp decline.

Scenario 2: Limit Take-Profit Order

You bought BTC at $40,000 USDT and set a take-profit with a trigger price at $50,000 and a limit sell price at $50,500 USDT. When the price reaches $50,000, the system places a limit order. If the market price exceeds $50,500, the order will be executed immediately. If the price does not reach $50,500, the order remains in the order book.

Scenario 3: Combined TP/SL Order

A trader places a limit buy order for BTC at $40,000 and immediately sets two conditional orders: a take-profit with a trigger price at $50,000 and a stop-loss with a trigger price at $30,000. After the purchase is executed, both conditional orders are activated simultaneously. If the price rises to $50,000, the TP activates and the SL is automatically canceled. If the price falls to $30,000 first, the SL activates and the TP is canceled.

Important Restrictions and Rules When Using Trigger Price

When setting a trigger price, you must follow certain rules to ensure your order is successfully placed:

For sell orders: the trigger price for TP should be higher than your limit order price, while the trigger price for SL should be lower.

For buy orders: the opposite — the trigger price for TP should be lower than your order price, and SL should be higher.

Price limits: the execution price cannot exceed the maximum percentage limit set for each trading pair. For example, if the limit is 3%, then the take-profit price for a buy order should not exceed 103% of the trigger price.

Minimum order amount: if, after executing the limit order, the TP/SL amount does not meet the platform’s minimum requirements, the order will not be placed. This is especially important when working with small positions.

Maximum order sizes: limit and market orders have different maximum sizes. If you try to set a market TP/SL order exceeding the maximum for market orders, the placement will be rejected. For example, if the maximum for a limit order is 1 BTC and for a market order is 0.5 BTC, placing a limit order with a market TP/SL size above 0.5 BTC will be impossible.

Proper use of the trigger price and timely setting of TP/SL orders allow you to trade more confidently, knowing your capital is protected by automatic risk management mechanisms.