TP and SL are two such risk management tools used to lock profits in trading. Let’s take a closer look at what these abbreviations stand for:
Take Profit (TP)
Definition: It is a predefined price level at which a trade gets automatically closed to salvage the profit .
Purpose: It helps lock in gains to a trade when the market reaches a favorable level.
Example: If you buy EUR/USD at 1.1000 and set a TP to 1.1100, the trade will automatically close at this price of 1.1100 and lock in your profit.
Stop Loss
Definition: A pre-defined price level that automatically closes a trade when reached so as to prevent losses on a particular trade.
Objective: Limits a trader’s risk in the event the market moves against their position.
Example: Buying EUR/USD at 1.1000, you place a SL at 1.0900. In such a case, the trade would automatically close, and you’ll lose no more than the preset amount of loss.