In trading, Take Profit and Stop Loss are critical risk management tools that can be used to lock profits. Below is a brief description of what they mean.
Take Profit (TP)
Definition: A predetermined price level automatically closing a trade to a bank for a profit.
Function: Locks profits by letting the market reach a certain favorable level.
Example: If you trade EUR/USD at 1.1000 and put a TP at 1.1100, the trade will automatically close when the price reaches 1.1100, locking in your profit.
Stop Loss (SL)
Definition: A predetermined price where the trade will close automatically to avoid further loss.
Objective: Protects a trader from extreme loss if the market moves against his position.
Example: If you open EUR/USD at 1.1000 and place a stop-loss at 1.0900, it will automatically close the trade if the price reaches 1.0900, which limits your loss.
