In futures trading, stop-losses are one of the most frequently discussed—and most frequently overlooked—topics. Many people know they should set a stop-loss, but aren’t clear on the difference between a market stop-loss and a limit stop-loss, or which price to use as the trigger.

Coin mentioned in this article: $BTC Current price: 68,318.8 (24h -3.9%).

— How do conditional orders work? —

Stop-loss and take-profit orders are both conditional orders: they do not enter the order book or get filled before the price reaches the trigger price you set. Once triggered, the system places the order according to your preset instructions.

For Binance USDⓈ-M Futures, you can choose whether the trigger condition is based on the latest price or the mark price. The latest price reacts faster, while the mark price is less likely to trigger accidentally due to a sudden wick in a single market.

— Stop-Market and Stop-Limit Orders —

When a stop-market order is triggered, it executes at the market price. It is more likely to be filled, but in volatile markets, significant slippage may occur, making the execution price quite different from the trigger price.

When a stop-limit order is triggered, it places a limit order. The execution price will be no worse than the limit you set. The trade-off is that if the price jumps straight past your limit, the order may remain unfilled indefinitely, rendering the stop ineffective.

— Where to Place a Stop-Loss —

A common approach is to place the stop-loss at a price level that would indicate your reasoning is no longer valid, then work backward from the stop distance to determine your position size—rather than deciding on a position size first and picking an arbitrary loss level afterward.

If your stop-loss is too close to your entry price, normal price fluctuations may trigger it. If it is too far away, the loss on a single trade may be too large. The way to balance the two is to adjust your position size, not to keep moving your stop-loss.

— A Few Practical Habits —

Set your stop-loss as soon as you open a position; don’t wait until your unrealized loss grows. In one-way position mode, you can select “Reduce Only” when placing take-profit and stop-loss orders to prevent a conditional order from opening a new position in the opposite direction after your position has already been closed.

Once you’ve set a stop-loss, don’t move it farther away just because the price is close to triggering it. Occasionally getting stopped out is a normal cost of trading. Letting a small loss grow into a big one is what you should avoid.

— In Closing —

The point of take-profit and stop-loss orders isn’t to get every trade right; it’s to keep losses at a level you decided on in advance when your judgment is wrong. Try to invest only money you can afford to lose without it affecting your life.

Had you heard about this before?

This is not financial advice. Make your own trading decisions.