Stop-loss and Take-profit: how to use stop-loss orders on Forex

When you trade in the financial market, rapid changes in asset prices can cause losses in your trading account. Few people actually follow the money management rules they read about in educational articles and often open trades for the full amount available.

FxPro clients, however, usually use risk management tools by setting Stop Loss (SL) and Take Profit (TP) levels for each position. Both of these tools are available free of charge on all FxPro trading platforms.

What is Stop-loss and Take-profit

Stop-loss (SL) is the level at which a trade is automatically closed to limit losses, and the resulting profit is credited to your account. Take-profit (TP) is the level at which a deal is closed to preserve the profit already made.

Similarities and differences between SL and TP

At first glance, SL and TP are easy to use: one limits losses and the other protects profits. However, choosing the right level for each individual case can be complicated.

Varieties of SL orders

There are three main types of SL orders:

• Percentage Stop — sets SL as a percentage of the trade amount.
• Chart Stop — is based on technical analysis of the chart.
• Volatility Stop — based on market volatility.

How SL works

SL is a pending order that remains active even without your participation. For example, you can set SL and do other things. When the price reaches the specified level, the trade will automatically close.

How to use different types of SL

Percentage Stop is calculated based on the percentage of the transaction amount. Chart Stop is based on technical analysis of the chart, and Volatility Stop is based on market volatility.

How TP works

TP is the level at which a trade is automatically closed to protect the profit made.

Setting SL and TP

You can set SL and TP on the MT4 platform or similar. After opening a position, right-click and select «Edit» to set or change the SL and TP values.

Conclusion

SL and TP are essential tools for risk management in Forex. When choosing SL and TP levels, you should take into account your strategy and market analysis. It is always better to be over-insured than to regret missed opportunities.