Stop Loss and Take Profit Explained

Stop loss and take profit are two essential trading orders used to control profits and losses in a forex trade. Both orders are designed to decide how much you are willing to risk or make from each trade. This may seem pretty easy at first, but knowing how to apply for each order correctly according to preset risk management rules is what differentiates successful forex traders from the crowd. 

What is Stop Loss Order？ 

A stop-loss (SL) order is used to automatically close a trade when the price reaches your set price level. It indicates how much money you are willing to put at risk for a single trade.

This order can help in minimizing the losses if the price begins moving in the opposite direction, and in some cases locking profits as well. It is usually placed with a market or a pending order and can be a number of pips, percentages, or a particular price level. 

What is Take Profit Order？

A take-profit (TP) order is set to close a trade when the price reaches profit levels. It is also an automatic order that doesnt need your interference to be activated. While the stop loss basically aims for stopping losses, the take-profit order is intended for keeping profits. 

On contrary to the stop-loss order, the take profit is set in the same direction as your trade. It is higher than the entry-level for long trades, and below the entry-level for short trades.

Read further on Stop Loss and Take Profitto understand why you need to use them and how to set them properly.