Stop loss and take profit

A stop loss and a take profit are exit orders. You attach them to an open position, or to a pending order before it fills, and the platform closes the position automatically when the price reaches the level you set:

• Stop loss (SL): closes the position when the price moves against it to your level, to limit the loss in normal market conditions.
• Take profit (TP): closes the position when the price moves in its favour to your level, to lock in the gain. If the price never gets there, the position stays open.

Both work while you are away from the screen, and both are optional.

Which side of the entry price each level goes on depends on the direction of the trade:

A buy position closes at the bid price and a sell position at the ask, so the spread matters: a sell position's stop loss triggers when the ask price reaches the level, which can happen before the bid price does.

A level on its own says little. What matters is the distance from the entry price, in pips, and the size of the position, in lots:

Amount at a level = distance in pips × pip value per lot × number of lots

On one standard lot of EUR/USD (100,000 euros), 1 pip (0.0001) is worth $10, so on 0.5 lots it is worth $5.

TradeLocker can do this arithmetic for you: as the video shows, you can set the stop loss as a dollar amount of risk instead of a price. In MT5, you set the stop loss and take profit as prices.

How much to put at risk on a trade is your decision; this guide does not suggest a level. The glossary entries on position sizing and the risk-reward ratio explain the arithmetic.

When the price reaches your level, the stop loss becomes a market order and is filled at the next available price. In normal conditions that is often at or near your level. In a fast market, or when the price gaps past your level (after a weekend or major news, for example), the fill can be well beyond it.

NextTrade's Order Execution Policy says so directly: stop loss and take profit orders are not guaranteed to execute at the exact specified price, particularly in volatile or gapping market conditions, and slippage is applied symmetrically. A take profit can also fill at a different price in a gap.

A stop loss is a level you choose for one position. A stop out is different: it is the platform closing positions automatically because your account no longer has enough margin to keep them open.

• At NextTrade, a margin call happens when your margin level falls to 100%. It is an alert; nothing is closed.
• If the margin level falls to 50%, the stop out starts closing positions automatically.

A stop loss works per position; a stop out looks at the whole account.

A trailing stop is a stop loss that moves with the price. You set a distance, for example 30 pips; as the price moves in your favour, the stop follows it at that distance, and when the price moves against you, the stop stays where it is.

Platforms run trailing stops differently. In MT5, the platform on your device moves the stop, so it only moves while the platform is open and connected; otherwise the stop loss stays at its last level.

On both platforms you can set a stop loss and a take profit when you place the order, or add them later to an open position or a pending order.

• MT5: enter the levels as prices in the order window or by modifying the position, or drag them on the chart.
• TradeLocker: set them in the order panel, where the stop loss can be a dollar amount of risk, or drag them on the chart.
• Changes: modify the position or drag the line; clear the field to remove a level.

Removing or widening the stop loss on a losing position increases what you can lose on it.

The video above walks through a trade on a TradeLocker demo account in about 90 seconds:

1. Find the market and choose the order type: market (at the current price) or pending (at a price you set).
2. Choose the number of lots; the margin for the trade is shown just above.
3. Set the stop loss by entering your risk as a dollar amount, and drag the take profit on the chart.
4. Click Buy or Sell. One-click trading can skip the confirmation, but use it with care.
5. The order is placed: as a pending order, its stop loss and take profit apply once it fills.

The video ends with a reminder that trading involves risk.