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TP (Take Profit) and SL (Stop Loss) are vital tools in trading to take risks off and lock up profits. The following breaks down what each means.
Take Profit (TP)
Definition: It is the price set on which a trade will close automatically to realize a profit.
Purpose: This allows the trader to take the profits when the market reaches an advantageous level.
Example: If you have bought EUR/USD at 1.1000 and have set a TP at 1.1100, the trade will automatically close once the price reaches 1.1100, thereby locking in your profit.
Stop Loss (SL)
Definition: A predetermined price level that automatically closes a trade to prevent losses.
Purpose: Protects traders from significant losses if the market moves in the opposite direction of the trader’s position.
Example: If you are buying EUR/USD at 1.1000 with an SL at 1.0900, this means if the price touches 1.0900, then the trade is automatically closed with less of a loss to you.
