1. What is a stop order?
Stop order is an algorithmic trading strategy with which you can set a trigger price and an order price to limit losses and reduce risks. Your order will be placed automatically at the predefined order price once the market price reaches the predefined trigger price to "take profit" or "stop loss". All stop orders in one-way mode and stop orders to close in hedge mode will not freeze your margin or positions. Stop orders to open in hedge mode will freeze your margin. You can place an OCO (One-Cancels-the-Other) order if you want to combine a set of take profit and stop loss orders. When either one is triggered, the other order is automatically canceled.
2. Placing a stop order along with a normal order
When placing a limit order, advanced limit order, or market order, you can set up a stop order for the position to be opened. The stop order will be submitted along with the limit order. When the limit order is fully filled, the stop order will be placed automatically with the predefined trigger price and order price.
3. Placing a stop order via the entry point in the position
Two types of TP/SL orders target a position: Partial position TP/SL and Entire position TP/SL.
You can check and cancel the TP/SL orders in the Open orders - TP/SL
3.1 Partial position TP/SL
The pages for the partial position TP/SL are as follows:
Currently, we support the customers to set TP/SL according to the Price/Estimated Profit/Estimated Profit Rate.
It applies to the entire position. In this mode, the order quantity changes with the position size.
At the same time, a market order will be placed when the trigger price is reached. You can only place one entire position TP/SL order targeted at one position.
If you decide to place both take profit and stop loss at the same time, if one side is triggered, the other side will be canceled.
The entire position TP/SL (original TP/SL) applies to a fixed quantity in the position. In this mode, the order quantity doesn't change with the position size.
In the partial position TP/SL mode, you can choose to place a limit order or a market order when the
triggered price is reached. You can place more than one partial position TP/SL order.
User Scenarios
Scenario 1. Close a long position with a conditional order
John holds a long BTC contract with an average open price of 9,000 USD and expects to close the long position to stop losses when the market price drops to 8,000 USD. John places a conditional order as shown below.
Trigger price: 8,000 USD
Order price: 7,950 USD
When selling out, it is preferred to set the order price not too close to the trigger price to ensure the order will be filled promptly. Choosing the market price is also recommended.
If the price falls to 8,000 USD, the stop loss order will be triggered, and John's long position will be closed at 7,950 USD. If the order price is set as the market price, the position will be closed at the market price immediately.
If John wants to close his long position and lock in his gains, he can set up a take profit order and set the trigger price higher than 9,000 USD.
Scenario 2. Close a short position with a conditional order
Jane holds a short BTC contract with an average open price of 9,000 USD and expects to close the short position to stop losses when the market price rises to 10,000 USD. Jane places a conditional order as shown below.
Trigger price: 10,000 USD
Order price: 10,050 USD
When buying in, it is preferred to set the order price higher than the trigger price to ensure the order will be filled promptly. Choosing the market price is also recommended.
If the market price goes up to 10,000 USD, the stop loss order will be triggered and Jane's short position will be closed at 10,050 USD. If the order price is set as the market price, the position will be closed at the market price immediately.
If Jane wants to close her short position and lock in her gains, she can set up a take-profit order and set the trigger price somewhere lower than 9,000 USD.
Scenario 3. Close a long position with an OCO order
Joe holds a long BTC contract with an average open price of 9,000 USD. He expects to take profits when the market price surges to 10,000 USD and to stop losses when the market price drops to 8,000 USD. Joe places an OCO order as shown below.
TP (take profit) trigger price: 10,000 USD
TP order price: Market price or any price, e.g. 9,950 USD
SL (stop loss) trigger price: 8,000 USD
SL order price: Market price or any price, e.g. 7,950 USD
TP will be triggered if BTC's market price goes up to 10,000 USD and Joe can exit the trade at the market price instantly or at the preset TP order price, for example, 9,950 USD. At the same time, the SL order will be canceled.
SL will be triggered if BTC's market price drops to 8,000 USD and Joe can exit the trade at the market price instantly or at the preset SL order price, for example, 7,950 USD. Meanwhile, the TP order will be canceled.
Scenario 4. Close a short position with an OCO order
Jenny holds a short BTC contract with an average open price of 9,000 USD. She expects to take profits when the market price drops to 8,000 USD and to stop losses when the market price surges to 10,000 USD. Jenny places an OCO order as shown below.
Scenario 5. Open a long position with a conditional order
BTC's current market price is 11,500 USD and Jack believes the market will turn bullish if BTC's market price pushes through the 12,000 USD mark. Jack places a conditional order as shown below.
Trigger price: 12,000 USD
Order price: Market price or any price, e.g. 12,050 USD
If BTC's price goes up to 12,000 USD, a long order will be triggered and placed at its market price or the preset order price, for example, 12,050 USD.
OCO orders can also be placed for opening a long position. A bullish action will be triggered at the higher price while a reverse order will be triggered at the lower price.
Scenario 6. Open a short position with a conditional order
BTC's current market price is 6,500 USD and Jill believes the market will turn bearish if BTC's market price falls through the 6,000 USD mark. Jill places a conditional order as shown below.
Trigger price: 6,000 USD
Order price: Market price or any price, e.g. 5,950 USD
If BTC's price drops to 6,000 USD, a short order will be triggered and placed at its market price or the preset order price, for example, 5,950 USD.
OCO orders can also be placed for opening a short position. A bearish action will be triggered at the lower price while a reverse order will be triggered at the higher price.
Important Facts About Stop Orders
1. Stop orders are not a foolproof measure against liquidation
Even if you set a stop-loss order with the Mark Price as the stop price, it's important to note that a stop order is not a foolproof measure against liquidation. The liquidation price can change and the stop-loss order may not protect positions from liquidation.
2. Stop orders are different from limit orders
A limit order and a stop order serve different purposes and should not be confused with each other. The former is an order to buy or sell an asset at a specific or better price, while the latter is triggered when a certain price level is reached and is used to pick up on an upward or downward trend.
3. Stop orders can be used to open and close positions
A stop order is not limited to closing a position; it can also be used to open one. As such, it is possible to use a stop order to enter a new position on the market, in addition to exiting an existing position.
4. Triggered orders may fail due to price limit rules
When last price, mark price or index price exceeds a predetermined trigger condition, triggered orders will be triggered successfully. However, if triggered orders' price exceeds price limit, orders may fail to be executed entirely or partially.
Closing Thoughts
Stop orders are a great trading tool when you want to open or close a position in a futures contract. It can help you draw up a predetermined exit strategy, minimize losses, and maximize returns. However, before choosing a combination of stop order types, it is best to understand the options available to you and evaluate how each one can influence your strategy.