The operation of the Stop Loss and Take Profit functions serves a similar purpose – automatic closing of the position when the set position value is reached. However, their operation is slightly different, and please read the following description before using these functions.
Take profit – close with profit
Setting the Take Profit course means placing a resale order (in the case of a long position) or redemption (in the case of a short position) of bitcoins at a fixed exchange rate. This guarantees that the position will be closed at a fixed rate, but it also means that the item may not be closed in its entirety. It depends on whether and how many people will be willing to conclude a sale transaction or purchase bitcoins at such a rate.
Stop Loss – close at the loss
Setting the Stop Loss price means that the system will monitor the price and close the position if the rate falls below the set value (long position) or above it (short position). This allows you to minimize losses associated with adverse exchange rate changes. The automatic closing of the position in this case, however, will be made in its entirety – it is impossible to partially close the position using the Stop Loss function.
Take Profit example
You open a long position at 5 BTC at the price of PLN 2000 and set the Take Profit value to PLN 2500. This means that the marketplace will sell a 5 BTC order with a rate of PLN 2500, which is related to your position. Execution of this order will close the position.
Let’s assume that the bitcoin price will increase to PLN 2500 and customers will buy 2 BTC from the order related to your position, after which the price will fall again. It means that your position will be closed in 40% (you sold 2 BTC from purchased 5 BTC). If the course increases again and customers start to buy bitcoins that you offer at a price of PLN 2500, your position will be closed. Of course, you can also close the position manually (in whole or in any part) at any time.
The Stop Loss example
You open a long position at 5 BTC with the price of 2000 PLN and set the Stop Loss value to 1500 PLN. The bitcoin price drops until the following purchase orders remain on the stock exchange:
Purchase of 1 BTC at a rate of PLN 1550.
Purchase of 3 BTCs at a rate of PLN 1500.
Purchase of 5 BTC at a rate of PLN 1450.
The current closing price for an order worth PLN 10,000 is, in this situation, 1487.1795 (sale of 1 BTC for PLN 1,550, 3 BTC for PLN 1500 and PLN 2,7247,337 BTC for PLN 1,450, which gives a total of PLN 1550 + PLN 4,500 + PLN 3,950 = PLN 10000). It is lower than the specified Stop Loss rate, so the position will be automatically closed at a rate of PLN 1,500.