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A 10x long with both exits. How can it end?Take-profit 61,800Stop-loss 59,400Entry 60,000If filled at 61,800+18 USDT30% of your 60 USDT marginIf filled at 59,400−6 USDT10% of your 60 USDT margin60 USDT margin at 10x: 0.01 BTC from 60,000, before fees
A 10x long with both exits.How can it end?Take-profit 61,800Stop-loss 59,400Entry 60,000If filled at 61,800+18 USDT30% of your 60 USDT marginIf filled at 59,400−6 USDT10% of your 60 USDT margin60 USDT margin at 10x: 0.01 BTCfrom 60,000, before fees

One trade, two exits. Choose the levels before you start.

Take-profit and stop-loss

A take-profit and a stop-loss send market exits when the mark price reaches levels you choose.

Lesson 6 of 75 min3 parts

Updated . Cryptathon rules checked on .

A take-profit closes your position at a gain level you choose, and a stop-loss at a loss level. For a long, the take-profit sits above the entry and the stop-loss below; for a short, the other way round. A 10x BTC long from 60,000 could use 61,800 and 59,400. On Cryptathon each exit fires on the mark price.

By the end, you can

  1. 1Set the take-profit and stop-loss levels for a long or a short
  2. 2Check that a stop-loss sits closer than the liquidation price
  3. 3Work out the risk, the reward and the reward-to-risk in USDT

1 of 3

Where do take-profit and stop-loss go?

A take-profit sends a market exit when the price reaches a gain you chose, and a stop-loss sends one when the price reaches a loss you chose. On Cryptathon, each exit is a reduce-only stop-market order that fires when the mark price reaches your level.

You set them when you open a trade, or later on an open position. Then you do not have to watch the screen. The first level the mark price reaches sends its market exit and cancels the other exit (when one exit fires, the other is cancelled). The exit can fill in parts.

Worked example

Set both on a 10x long

You put 60 USDT of margin on a BTC long at 10x, with BTC at 60,000. You want to take profit at +3% and stop the loss at −1%. Where do the two levels go?

  1. 1
    Find the position sizeMargin times leverage.
    60 × 10 = 600 USDT
  2. 2
    Find the size in BTCThe exits sell this much.
    600 ÷ 60,000 = 0.01 BTC
  3. 3
    Put the take-profit aboveA long gains when the price rises.
    60,000 + 60,000 × 3% = 61,800 USDT
  4. 4
    Put the stop-loss belowA long loses when the price falls.
    60,000 − 60,000 × 1% = 59,400 USDT

AnswerTake-profit at 61,800 and stop-loss at 59,400. Both are sells of 0.01 BTC that wait for the mark price.

BTC price, USDT62,00061,00060,00059,000Take-profit 61,800Stop-loss 59,400Entry 60,000
BTC price, USDT62,00061,00060,00059,000Take-profit 61,800Stop-loss 59,400Entry 60,000
Figure 1 A 10x long from 60,000 with a take-profit at 61,800 above and a stop-loss at 59,400 below. The price moves between them until it reaches one.
Your turn You open an ETH short at 3,000 USDT. You want a take-profit at 2% and a stop-loss at 1%. Where do they go?
  1. Take-profit 3,060, stop-loss 2,970

    Those are the levels for a long. A short gains when the price falls.

  2. Take-profit 2,940, stop-loss 3,030

    Right. 3,000 − 3,000 × 2% = 2,940, and 3,000 + 3,000 × 1% = 3,030.

  3. Take-profit 2,940, stop-loss 2,970

    A short loses when the price rises, so its stop-loss sits above the entry.

  4. Take-profit 2,998, stop-loss 3,001

    You moved the levels by 2 and 1 USDT. Use 2% and 1% of 3,000.

Show the answer

B: Take-profit 2,940, stop-loss 3,030. 3,000 − 3,000 × 2% = 2,940, and 3,000 + 3,000 × 1% = 3,030.

2 of 3

Why must a stop-loss come before liquidation?

A stop-loss helps only if it fires before liquidation. Both watch the same price: on Cryptathon the mark price is used for liquidation, take-profit and stop-loss triggers, and funding payments. So the stop-loss must sit between your entry and the liquidation price.

At 10x a long has about 9.5% of room before liquidation. The Leverage lesson shows where that number comes from.

Worked example

Where must the stop-loss sit?

Same trade: a 10x BTC long from 60,000. About where is the liquidation price, and does a stop-loss at 59,400 fire first?

  1. 1
    Find the room at 10xOne divided by the leverage, minus the 0.5% maintenance margin.
    1 ÷ 10 − 0.5% = 0.095
  2. 2
    Turn it into a price moveHow far BTC can fall.
    60,000 × 0.095 = 5,700 USDT
  3. 3
    Find the liquidation priceAbout, using the rule of thumb.
    60,000 − 5,700 = 54,300 USDT
  4. 4
    Compare it with the stop-lossThe stop-loss sits this far above liquidation.
    59,400 − 54,300 = 5,100 USDT

AnswerLiquidation is at about 54,300, and the stop-loss at 59,400 fires long before it. A stop-loss below the liquidation price cannot be relied on to close a long before liquidation.

BTC price, USDT60,00058,00056,00054,000Stop-loss 59,400: fires firstLiquidated ≈ 54,300Stop-loss 54,000: below the liquidation price
BTC price, USDT60,00058,00056,00054,000Stop-loss 59,400: fires firstLiquidated ≈ 54,300Stop-loss 54,000: below the liquidation price
Figure 2 Under a 10x long from 60,000. A stop-loss at 59,400 fires first. A stop-loss at 54,000 sits under the liquidation price of about 54,300, so it cannot be relied on to close the long first.
Your turn You open an ETH long at 3,000 at 20x. The room is about 4.5%, so liquidation is at about 2,865. Which stop-loss protects you?
  1. 2,940

    Right. It sits between the entry and 2,865, so the mark price reaches it first.

  2. 2,850

    That is under the liquidation price, so it cannot be relied on to close you before liquidation.

  3. 2,865

    That is about the liquidation price, so it does not give an earlier exit.

  4. 3,060

    That is above the entry. A long's stop-loss goes below the entry.

Show the answer

A: 2,940. It sits between the entry and 2,865, so the mark price reaches it first.

3 of 3

How do you work out reward-to-risk?

The levels let you work out the gain or loss if each exit fills exactly at its level. The loss at the stop-loss is your risk. The gain at the take-profit is your reward. Put both in USDT, not only in per cent.

Worked example

The two outcomes

Same 10x long of 0.01 BTC from 60,000, take-profit at 61,800, stop-loss at 59,400. What is each outcome, and what is the reward-to-risk?

  1. 1
    Find the gain at the take-profit61,800 is 1,800 USDT a BTC above the entry.
    1,800 × 0.01 = 18 USDT
  2. 2
    Find the loss at the stop-loss59,400 is 600 USDT a BTC below the entry.
    600 × 0.01 = 6 USDT
  3. 3
    Compare reward with riskYou can make 3 USDT for each 1 USDT you risk.
    18 ÷ 6 = 3
  4. 4
    Compare the risk with your marginBefore fees and any gap between the trigger and the fill.
    6 ÷ 60 = 10%

AnswerYou risk 6 USDT to make 18 USDT, a reward-to-risk of 3 to 1. The real result depends on the fill prices, fees and funding.

+181 take-profit=−6−6−63 stop-losses18 ÷ 6 = 3: a reward-to-risk of 3 to 1
+181 take-profit=−6−6−63 stop-losses18 ÷ 6 = 3: a reward-to-risk of 3 to 1
Figure 3 Before fees, funding and fill gaps, one 18 USDT gain covers three 6 USDT losses.

A higher reward-to-risk does not make a trade better by itself. A take-profit far away is reached less often. The ratio tells you how often you must be right to break even: at 3 to 1, one gain covers three losses, before costs and at the planned fills.

Your turn Before costs, with fills exactly at the levels, you gain 18 USDT at your take-profit and lose 6 USDT at your stop-loss. How many stop-losses does one take-profit cover?
  1. 1

    One stop-loss costs only 6 USDT. The take-profit pays 18.

  2. 3

    Right. 18 ÷ 6 = 3, so one gain covers three losses.

  3. 6

    That is the loss in USDT, not how many losses the gain covers.

  4. 18

    That is the gain in USDT. Divide it by the loss of 6.

Show the answer

B: 3. 18 ÷ 6 = 3, so one gain covers three losses.

Common questions

Does a stop-loss guarantee your exit price?

No. On Cryptathon the stop-loss fires when the mark price reaches your level. Its market order sells to the bids to close a long, or buys from the asks to close a short. In a fast move the fill can be worse than the trigger price. If only part fills, if a stop only part-fills, a new stop is sent for the rest until the position is closed.

What fee do take-profit and stop-loss pay?

On Cryptathon each exit pays the taker fee, because the exit trades as a market order. The fee is a share of the size that trades at the exit. For a 0.01 BTC long, a take-profit at 61,800 sells 618 USDT and pays about 0.31 USDT. A stop-loss at 59,400 sells 594 USDT and pays about 0.30 USDT. The fee to open the trade was paid before.

Does higher leverage change where the stop-loss can go?

Yes. Higher leverage puts the liquidation price closer to your entry, so the stop-loss must be closer too. With a 0.5% maintenance margin, the room is about 1 ÷ leverage minus 0.5%: about 9.5% at 10x, 4.5% at 20x and 1.5% at 50x. A stop-loss 2% from the entry works at 10x, but at 50x it sits past liquidation.

Check yourself

Three questions on the whole lesson.

Question 1 of 3 You hold a 10x BTC long from 60,000 with a stop-loss at 54,000. Liquidation is at about 54,300. The mark falls slowly from 60,000. Which level does it reach first?
  1. The stop-loss at 54,000

    A falling price passes the higher level first, and 54,300 is above 54,000.

  2. The liquidation price, near 54,300

    Right. It is above the stop-loss at 54,000. The liquidation fill can differ from that price.

  3. The stop-loss, because you set it yourself

    Your own exits do not come first. The price reaches whichever level is nearer.

  4. Neither, until you close the trade

    Liquidation closes the position for you when the mark reaches it.

Show the answer

B: The liquidation price, near 54,300. It is above the stop-loss at 54,000. The liquidation fill can differ from that price.

Question 2 of 3 You go long 2 SOL at 150 USDT, with a take-profit at 156 and a stop-loss at 147. What is the reward-to-risk?
  1. 1 to 2

    That is upside down. The reward is 12 USDT and the risk is 6 USDT.

  2. 2 to 1

    Right. The reward is 6 × 2 = 12 USDT, the risk is 3 × 2 = 6 USDT, and 12 ÷ 6 = 2.

  3. 12 to 1

    12 USDT is the reward. Divide it by the risk, 6 USDT.

  4. 4 to 1

    4% is the move to the take-profit. Compare it with the 2% move to the stop-loss.

Show the answer

B: 2 to 1. The reward is 6 × 2 = 12 USDT, the risk is 3 × 2 = 6 USDT, and 12 ÷ 6 = 2.

Question 3 of 3 You keep the same stop-loss price but open twice the position size. What happens to the USDT you can lose at the stop-loss?
  1. It stays the same

    The price distance is the same, but it now counts on twice the size.

  2. It doubles

    Right. The loss is the price distance times the size, and the size doubled.

  3. It halves

    A bigger position loses more on the same move, not less.

  4. It is 0

    A stop-loss limits the loss. It does not remove it.

Show the answer

B: It doubles. The loss is the price distance times the size, and the size doubled.

What to remember

  1. Where do take-profit and stop-loss go?For a long the take-profit sits above the entry and the stop-loss below; for a short it is the other way round.
  2. Why must a stop-loss come before liquidation?Put the stop-loss between your entry and the liquidation price; below it, the stop-loss cannot be relied on.
  3. How do you work out reward-to-risk?Work out the risk and the reward in USDT before you open, and compare them.
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