Successfully navigating the financial markets requires a solid risk management strategy. Among the most crucial tools for any trader is the effective use of take profit and stop loss orders. These advanced order types help protect your capital and lock in gains automatically. This guide builds upon foundational knowledge, explaining the various statuses of these orders and providing a clear example of how they operate in a live market environment.
Understanding Order Statuses for Take Profit and Stop Loss
A take profit or stop loss order is a conditional trade that is automatically submitted to the order book once a predetermined trigger price is reached. It acts like a limit order with an automated "on/off" switch, which is the trigger price itself. Once the market hits this price, your order is instantly sent for matching.
These orders can exist in one of four primary states, each indicating a specific phase in the order's lifecycle.
1. Awaiting Order
This is the initial state. Your order has been placed in the system but has not yet been activated because the market price has not reached your specified trigger price. The order remains queued and inactive.
2. Order Activated
This status means the market price has touched or passed your trigger price. Your predetermined order has now been successfully submitted to the market for execution. It is crucial to remember that an activated order is not a guarantee of a fill; it only signifies that the order is now live in the order book and is subject to the rules of matching.
3. Order Failed
An order will be marked as failed if it is triggered but cannot be executed. This typically occurs for one of two reasons:
- Insufficient Position: You no longer hold the necessary position or the required amount of the asset.
- Position Locked: The corresponding position is currently occupied by another pending order or is otherwise unavailable for trading.
In these scenarios, the system triggers the order but finds nothing to close or trade, resulting in a failed status.
4. Order Canceled
This status is the result of a manual action. You can choose to cancel your take profit or stop loss order at any time before the market price reaches the trigger point. Once canceled, the order is removed from the system and will not be activated.
How Triggered Orders Are Executed in the Market
Theoretical knowledge is best understood with a practical example. Let's walk through a scenario to see how a stop loss order functions from trigger to execution.
Scenario: You are holding a long position that was opened at a price of $80. The current market price has fallen to $56. To manage your risk and limit potential losses, you decide to set a stop loss order to exit your position if the price drops to around $55.
Order Setup:
- Order Type: Stop Loss (for closing a long position)
- Trigger Price: $55
- Order Price: $53
Sequence of Events:
- The market continues to decline, moving from $56 down to $55.
- Hitting the $55 trigger price activates your stop loss order.
- The system immediately submits a sell order with a limit price of $53 to the market.
- This order price of $53 means you are willing to sell, but you will accept no less than $53 per unit.
- The order will be filled if there is a matching buy (bid) order in the order book at $53 or higher. It will remain open, potentially being filled in parts, until the price moves below $53 and your limit condition can no longer be met.
This mechanism ensures you have control over the minimum price you are willing to accept, even when exiting a losing trade automatically. To master these tools and explore advanced configurations for complex strategies, 👉 discover advanced order types.
Frequently Asked Questions
What is the main difference between a stop loss and a take profit order?
A stop loss order is designed to limit a potential loss by automatically closing a position if the price moves against you by a certain amount. A take profit order does the opposite; it automatically closes a position to secure a profit once the price reaches a favorable level you've predetermined.
Can my stop loss order execute at a worse price than my order price?
If you use a stop-limit order (as in the example above), your order will not execute at a worse price. Once triggered, it becomes a limit order and will only fill at your specified price or a better one. However, if the market is moving very fast (gapping), there is a risk of the order not being filled at all if the price skips past your limit.
Why did my order fail after being triggered?
An order typically fails after triggering because the system could not execute it. The most common reasons are that your account no longer held the necessary position size or the funds were unavailable, often because they were already allocated to another active order.
Is it better to use a stop-market or a stop-limit order?
A stop-market order guarantees execution but not price, as it becomes a market order when triggered. A stop-limit order guarantees price (or better) but not execution. The choice depends on your priority: certainty of exit (stop-market) or price control (stop-limit), especially in highly volatile markets.
Can I modify a take profit or stop loss order after placing it?
Yes, on most major trading platforms, you can modify or cancel these conditional orders at any time before they are triggered. This allows you to adapt your risk management strategy to changing market conditions.
Do these orders cost extra to place?
Generally, there is no additional fee solely for placing a take profit or stop loss order. You will only pay the standard trading fee if and when the order is successfully executed and filled.