TP and SL are important risk management tools in trading and can lock profits in. The definition is:
Take Profit (TP)
Definition: A predetermined price at which a trade closes automatically for the trader to book profits.
Purpose: Lock in gains by taking a pre-set profit if the market is advantageous.
Example: If you buy EUR/USD at 1.1000 and set a TP at 1.1100, the trade will close automatically once the price hits 1.1100, and your profit will be secured.
Stop Loss (SL)
Definition: It is a pre-set price level where trade will automatically close to limit losses.
Purpose: Stops the trader from excessive loss if the market moves against his position.
Example: You buy EUR/USD at 1.1000 and set a stop loss at 1.0900. Then, if the price reaches 1.0900, the trade will close automatically, thereby limiting your loss.