What Is Stop Loss and Take Profit?

Stop-Loss is a pending order used by traders to minimize risks. When analyzing the market, traders may misinterpret the asset price movement and incur losses. To mitigate the amount of potential loss, a trader can set certain risk limits based upon the market situation. This saves you having to monitor charts for extended periods of time and can remove the emotional element when making key trading decisions. A Stop-Loss order also allows you to leave your screen to go and watch a movie with the knowledge your risk amount is capped.

Here is an example of how to place a Stop-Loss order:

• You open a EUR/USD buy trade at 1.0605
• You invest $500 with a multiplier of 100
• To place a Stop-Loss order correctly, check the chart for the asset’s price most recent decline. Find the minimal price.
• Your Stop-Loss order should be placed just below the minimal price, at approximately 1.0580
• To place a Stop-Loss order for this quote, first open a trade with the asset and then go to My Trades
• Select the EUR/USD trade you have just opened and click on it
• Select Quote from the Stop Loss/ Take Profit menu
• In the Stop Loss field, set your desired value,  1.0580 in our case, and click on Save

Now you don’t have to worry about the asset’s price changes nor will you have to spend hours monitoring your charts. Your risks have been calculated and taken care of. For more successful trades, the Stop-Loss order is often used together with the Take Profit order, available in the next lesson. 

Take Profit is a pending order that automatically locks-in a trader’s profit

Let’s imagine you want to leave a trade open a for a few hours and cannot be constantly monitoring the price movement. In this case, you simply place a Take Profit order and rest assured whilst you head off to watch a movie.
Let’s imagine that whilst you are watching the movie the asset’s price moves in a favorable manner. A Take Profit order placed in advance will lock-in your gain by automatically closing your position, once the asset reaches a favorable rate, so you make a profit whilst you watch your movie.

Here is an example of how to place a Take Profit order:

• You open a EUR/USD buy trade at 1.0620
• You invest $500 with a multiplier of 100
• Check the chart for the asset’s price most recent peak. In our case, it’s  1.0745.
• Your Take Profit order should be placed just below the maximum price, at approximately 1.0725
• To place a Take Profit order for this quote, first open a trade with the asset and then go to My Trades
• Select the EUR/USD trade you have just opened and click on it
• Select Quote from the Stop Loss/ Take Profit menu
• In the Take Profit field, set your desired value,  1.0725 in our case, and click on Save

Now you don’t have to worry about the asset’s price changes nor will you have to  spend hours monitoring your charts. When your target profit level has been reached, your trade will close automatically, and your earnings will be immediately deposited to your trading account. Enjoy the popcorn and watch that movie.