Stop Loss and Take Profit

Stop loss and take profit, and why a stop is not optional

A stop loss is an instruction attached to a position telling the platform: if the price reaches this level, close the trade. A take profit does the same thing on the winning side — it locks in a gain at a level chosen in advance, rather than leaving you to decide in the moment, when it is hardest to decide well.

Worked example

You buy 0.10 lots of EUR/USD at 1.0850.

• Stop loss at 1.0830 — 20 pips away. On 0.10 lots, 1 pip = $1, so the defined risk is 20 times $1 = $20.
• Take profit at 1.0890 — 40 pips away, so the defined target is 40 times $1 = $40.

That is a 1:2 risk-to-reward setup: risking $20 to make $40 if the trade reaches target first. Whether that ratio is good enough depends on how often trades like it actually reach target versus stop over time — a 1:2 ratio does not by itself mean the trade is a good idea, and this course makes no claim about how often any particular setup works.

The stop loss is not the same thing as the stop-out

Your stop loss is a level you choose, placed where your own analysis says the trade idea is wrong. A stop-out is different: it is the platform automatically closing a position when your account's equity falls too low to support it, and by the time that happens you have usually lost far more than you would have with a stop loss set at a sensible distance from your entry. Relying on the stop-out as your risk control, instead of setting your own stop loss, is one of the most common ways beginners lose more than they intended to risk.

One more honest caveat

A stop loss instructs the platform to close your position at your chosen level, but in fast-moving markets — a news release, a weekend gap — the price can jump past your stop before it can be filled at exactly that price, which is called slippage. A stop loss dramatically reduces your risk; it does not make it zero.

On the platform

This lesson's task asks you to set a stop loss on a demo position — not just calculate one on paper, but actually place it, because the habit only forms in your hands.