Q: What is Take Profit & Stop Loss?
A: Take Profit (TP) and Stop Loss (SL) orders are risk management tools which allow the users to close an existing position at a predetermined price. Do note that TP/SL orders are conditional market orders.
- Take Profit orders are typically set at better than the average entry price of a position.
- Stop Loss orders are typically set at worse than the average entry price of a position.
Q: What is the reference price for Take Profit & Stop Loss?
A: Mid Price is the reference price for TP/SL. Do note that the closing price of a position is based on Best Bid/Ask Price prices. Slippage should be expected in times of market volatility.
Q: What is the formula for Mid Price calculation?
A: Mid Price is calculated as [Current Bid Price + Current Ask Price]/2].
Q: What is the use case for Take Profit & Stop Loss orders?
A: Most users are typically unable to monitor open positions at all times. TP/SL orders are risk management tools to ensure that positions are closed at the Best Bid/Ask Price when the Mid Price of the symbol reaches its trigger price.
Q: Can Liquidations occur even when TP/SL orders have been set?
A: Yes, the reference prices for liquidations are Mark Price and the reference price for TP/SL orders are Mid Price. There is a possibility that Mark Price reaches the Liquidation Price before TP/SL is triggered. In this instant, Liquidation will take precedence over the triggering of TP/SL and the existing position will be closed by the liquidation engine.